Nu's Strong Q4 Profit Growth Underscored by Persistent Credit and Expansion Uncertainties

What happened

Nu Holdings reported a 50% year-over-year increase in Q4 net profit to $894.8 million, reinforcing its earnings momentum as highlighted in the Reuters article. However, the DeepValue master report cautions that this profitability is built on a foundation of high provisioning costs, which accounted for 15% of the credit portfolio in 2024, indicating significant risk exposure. Critical swing factors for the investment thesis, such as Mexico's final operational bank authorization and credit delinquency trends relative to the Q1'25 15–90 NPL baseline of 4.7%, remain unresolved and are not addressed in the earnings headline. At a current price of $16.82, the stock trades at premium multiples with a P/E of 32.2x, embedding expectations for sustained high ROE and successful international expansion without a margin of safety. Investors should look beyond the profit beat to the underlying fragilities in funding costs and credit cycles that could impair long-term returns.

Implication

The Q4 profit surge supports the base case of robust profitability, but investors must recognize that valuation already reflects this optimism, leaving little room for error if key risks materialize. Mexico's transformation from a SOFIPO to a bank remains incomplete, delaying cheaper funding and product rollouts like payroll accounts that are critical for growth. Credit metrics, particularly the 15–90 NPL ratio, must be monitored against the 4.7% baseline to avoid provisioning spikes that could compress ROE below 20%. Funding cost discipline in Mexico and Colombia is still unproven, with aggressive deposit pricing potentially eroding margins as competition intensifies. Therefore, while the earnings report is positive, it does not justify altering the cautious stance or provide sufficient evidence to overcome the thesis's dependency on unresolved catalysts.

Thesis delta

The strong Q4 earnings confirm the profitability aspect of the thesis but do not shift the fundamental uncertainties that drive the WAIT rating. No change is warranted in the investment call, as the critical dependencies on Mexico's final authorization and stable credit costs remain unaddressed. Investors should continue to await either a lower entry price near $14 or clear progress on these swing factors within the next 3-6 months.