After reporting a spike in third-quarter profit and revenue, Nu Holdings Ltd., the Brazilian digital lender with support from Warren Buffett’s Berkshire Hathaway Inc., soared 15% in early trading. The company’s shares, which had fallen 54% this year through Monday, increased to $5 from $4.35 in early trading.
According to a note from Morgan Stanley analysts led by Jorge Kuri, management’s remarks on an earnings conference call were favourable, particularly with regard to personal loan originations. Due to elements like best-in-class client satisfaction and excellent technology, Nubank is well-positioned to develop “one of the largest and most valuable banking franchises” in Latin America, according to the analysts.
Adjusted net income increased by more than three times from the previous quarter to $63.1 million, exceeding the $32.6 million average estimate in a news site’s survey of six analysts. With a client base increase of 70.4 million, Nubank’s income soared to a record $1.3 billion, exceeding the anticipated $1.1 billion.
“Souring loans have been rising given the current stage of the economic cycle, but we’ve been able to price in that surge really well,” CEO David Velez noted in an interview. Results were bolstered by efficiency improvements and recent legislation targeted at cutting funding expenses, according to Velez.
The percentage of loans that are overdue by more than 90 days increased from 4.1 per cent to 4.7 per cent over the previous three months, beating the 5 per cent prediction made by Goldman Sachs Group Inc. Last week, Banco Bradesco SA increased its bad-loan provision guidance, adding to worries that Latin America’s credit quality is deteriorating.
“The pace of personal-loan origination has been slower than we expected as we’re carefully monitoring the macro backdrop, so origination was nearly flattish” when analysed in comparison to Q2, Velez noted.
Fintech businesses are growing and adding employees throughout the region. Co-founder Cristina Junqueira stated in a separate interview that Nubank will end this year with at least 1,000 more staff. The plan, according to her, is to establish “global platform teams” to repeat the Sao Paulo-based company’s success in Brazil in Mexico and Colombia, where the fintech only provides credit cards. The majority of the hires are in fields like information security, collection, and fraud prevention.
The key goal of Nubank’s expansion into securities lending and payroll loans in Brazil, where it provides services like credit, debit cards, and investments, according to Velez, is to diversify revenue streams. He added that further solutions for the “upmarket customer” are also planned. The company should begin a “beta test” for its payroll-loan product in the fourth quarter and make it available to all clients in early 2023.
Nubank is “in a very, very strong position to look at acquisitions more actively,” Velez said, adding that “it would likely be verticals in financial services or even beyond in sectors where we haven’t built in-house.” Nubank raised $2.8 billion in its initial share offering in December.
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