Nu Holdings Cleared $1 Billion in Quarterly Net Income With 139 Million Customers

Nubank, the digital bank owned by Nu Holdings (NYSE: NU), is one of the fastest-growing banks in the world. It posted record results in the most recent quarter, and yet the stock price is floundering, down about 13% year to date.

Are investors missing the boat on this Brazilian banking powerhouse?

Image source: Getty Images.

Expanding into the U.S.

São Paulo-based Nubank launched 13 years ago as something new in its Brazilian market: a fully online digital bank. With no branches and little overhead, the idea was to reduce expenses, serve customers where they are, and operate more efficiently.

Nubank has achieved that, and then some. It has expanded into Mexico and Colombia and now has 139 million customers, adding 4 million in the second quarter alone. Most of them, about 118 million, are in Brazil, while Mexico has 16 million and Colombia has 5 million customers.

Nubank will soon be expanding into the United States. In January, it got conditional approval from the Office of the Comptroller of the Currency (OCC) to launch Nubank NA, a national digital bank in the United States.

The customer growth numbers are accompanied by its increasingly engaged and active user base. In the second quarter, the average revenue per active customer (ARPAC) was $17, up from $16 in the previous quarter. Further, the monthly activity rate, which counts people actively using the app, jumped to 83.5% overall, up from 83% in Q1. In Brazil, it hit 86% for the first time.

$1 billion in net income

The bank's efficiency has been outstanding. Its efficiency ratio, which measures how much the bank spends for every dollar of revenue, is 19.5%. That is extremely low, as most banks with branches are happy to have an efficiency ratio in the 50%-60% range. However, the efficiency ratio is up from 17.3% in Q1. The higher Q2 ratio is due to real estate and marketing expenses shifted from Q1, as well as costs for international expansion.

When you consider the efficiency, engagement, and customer growth, you get blowout earnings results. Nu generated $5.9 billion in revenue in Q2, up 39% year over year. Net interest income hit $3.7 billion, up 9% from the previous quarter, while net interest margin increased 180 basis points to 22.9%. Nu set a record for profitability with $1.1 billion in net income in Q2, up 17% from Q1 and 49% year over year. Also, the return on equity (ROE) rose to 33%, from 29% the previous quarter.

One of the concerns earlier this year was Nu's credit quality, as non-performing loans (NPL) had increased to 5%, up 89 basis points from Q4. But year over year, it was only up from 4.8%. In Q2, the NPL rate improved to 4.8% but was still up from 4.4% a year ago. The 90-plus-day NPL rate was 6.9% in Q2, up from 6.6% in the same quarter a year ago.

Nu's stock is up about 7% since the second-quarter earnings report came out on Aug. 13, signaling improving investor sentiment. It is trading at 20 times earnings and has a low PEG ratio of about 0.9, which means it is cheap relative to its long-term growth expectations.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nu Holdings. The Motley Fool has a disclosure policy.