Nubank’s (NU) First Billion-Dollar Quarter Comes With New Questions

Nu Holdings Ltd. (NYSE:NU) reported a net income of $1.1 billion for the second quarter, a 49% year-over-year increase and a 17% jump from the first quarter. The digital bank now serves 139 million customers across Brazil, Mexico, and Colombia, and obtained a new banking license in Mexico, transforming it into a full-scale bank.

Artificial intelligence and new customer tiers are being utilized to maintain growth, despite rising expenses and past-due loans. Net interest margin expanded by 180 basis points to 22.9%, and risk-adjusted net interest margin jumped to 12.4%. Return on equity remains at 33%. The subscription tier "Croma" in Brazil saw a 41% year-over-year increase in purchase volumes.

Mexico appears to be a stronger performer, with Nubank's customers generating more revenue per customer and achieving breakeven six years ahead of Brazil. However, past-due loans increased by 35 basis points to 6.9%. Operating expenses rose 20% sequentially to $806 million, pushing the efficiency ratio to 19.5%. The allowance for credit losses grew to $6.6 billion.

Hedge fund ownership decreased from 104 funds to 92. The stock's forward P/E of 21.01 suggests continued double-digit growth, but the company's ability to maintain this growth depends on Mexico's monetization and the success of new customer tiers.