Nu Holdings

Nubank reported another strong quarter, with net revenue jumping 39% from the previous year to $5.9 billion, while net income rose an even more impressive 49% to $1.1 billion. These results translate to a return on equity of 33%.

Why it matters: Thanks to strong results, Nubank's shares are trading at a high-single-digit percentage higher in after-hours trading on Aug. 13. Nubank continues to benefit from both a rapidly rising user count and more revenue per user, which rose 13% and 22%, respectively, from last year. We would attribute much of the quarter's strength to significant net interest margin expansion. The firm's net interest margin increased to 180 basis points from the previous quarter to 22.9%, thanks to a mix shift toward higher-yielding unsecured loans. Despite the mix shift, the firm's cost of credit fell sequentially to $1.69 billion from $1.79 billion. Nubank's credit quality remains decent, with between 15- and 90-day nonperforming loans coming in at 4.8% of total loans, up only modestly from 4.7% last year.

The bottom line: We expect to increase our $15.30 fair value estimate for narrow-moat-rated Nubank by a mid-single- to high-single-digit percentage. We see the shares as modestly undervalued at the current price, following their poor performance so far in 2026. Shares of Brazilian lenders in general have had a difficult year amid concerns around rapidly rising consumer debt levels and the potential impact of higher energy prices on economic growth, credit quality, and inflation. Nubank is particularly exposed, as its customer base is disproportionately composed of younger and lower-income consumers. However, the firm's actual results show few signs of credit pressure, though this will bear monitoring, given the rapid accumulation of unsecured consumer debt in Brazil.

We are increasing our fair value estimate to $16.60 from $15.30, which translates to a 2026 price/earnings ratio of 20.55 times. Around $0.40 of the increase comes from the time value of money since our last update. The rest of the increase comes from higher net interest income projections as the firm has enjoyed both faster user growth and more net interest margin expansion than aniticapted. Our model uses a 12.7% cost of equity, which includes a 3.7% country risk premium. Our fair value estimate is sensitive to assumptions for Nubank’s user penetration in Mexico and Colombia, loan growth estimates, interchange revenue, and credit cost projections.

With nearly 50% of Brazilians already having some kind of relationship with Nubank, we think the majority of user growth going forward will have to come from Mexico and Colombia, as the company is simply running out of room for user growth in Brazil. While we still see an opportunity in Brazilian small and medium-size enterprise accounts, where the company is underpenetrated, we project that Brazil will go from 87% of the firm’s user base in 2025 to 67.6% by 2035. Overall, we expect Nubank to reach market penetration of 64.4% in Brazil, 35% in Mexico, and 45% in Colombia. We expect a healthy 6.8% compound annual growth rate in accounts over the next 10 years as the company benefits from rising adoption of digital banking in Latin America and a cost-advantaged operating model relative to its competitors.

Due to Nubank’s rapid growth, most of its customer relationships are comparatively new, and client engagement has increased over time. Moreover, we expect its customer mix to shift toward Mexico over time, where GDP per capita is higher than in Brazil. The tailwinds of an auspicious mix shift and a maturing customer base are bolstered by a skew toward younger users, with an average age of just 37. As users age, we expect their financial assets and needs to grow over time, adding additional support to our loan volume and deposit growth forecasts. Strong account growth combined with rising activity per user should, in turn, drive strong loan growth. We forecast net interest income to compound at a 16.9% annual rate over the next 10 years.

On the interchange front, we expect slower near-term growth as the company has exposure to a few potential headwinds. In Brazil, for instance, the government-run peer-to-peer payment platform Pix has seen explosive transaction volume growth; the central bank estimates over 170 million users. While industrywide credit card volume growth has proved to be surprisingly resilient, debit card volume has faced more pressure. Additionally, interchange rate caps are being considered in Mexico that would reduce Nubank’s interchange revenue in the region. Our projected transaction revenue contemplates this; we forecast a 7% headwind from 2025 to 2027 attributable to falling average take rates. This is a point of near-term uncertainty because no legislation has been passed yet. Absent any change, we would expect Nubank’s Mexican growth to be a tailwind to the average take rate, thanks to the country’s uncapped debit card interchange rates.

The firm’s lean cost structure is the core driver of its success, which we expect to remain the case for the foreseeable future. Despite its already industry-leading efficiency ratio, we still expect some additional margin expansion. Nubank’s cost structure has been benefiting from its increased size, with the efficiency ratio falling from 76.7% in 2021 to 27.9% last year. While we think most scale efficiencies have already been achieved, we do expect some additional benefits, with our projected efficiency ratio stabilizing around 24.1%. We expect the largest source of cost efficiency to come from customer support and operations spending, where we expect cost per user growth to trail its rising average revenue per user as the company benefits from cross-selling and higher activity rates.

In our view, Nubank has a narrow economic moat, as we believe it has durable competitive advantages that will allow it to earn returns on equity that are well above its cost of capital; our projected midcycle return on equity is 35.7%. The company enjoys significant cost advantages thanks to its investments in technology and its nature as a fully digital bank, which has enabled it to use online bank accounts to build an asset and deposit base that spans multiple countries without the use of an expensive branch network. This has given Nubank the scale to be a major competitive presence in its core market of Brazil while also pursuing international expansion into Mexico and Colombia, without incurring any of the costs of maintaining a physical presence in these markets. The firm’s digital-only model gives it a significant cost advantage over its peers, whose extensive branch networks require large workforces and heavy capital investment to maintain. Nubank uses this cost advantage to offer better terms on its savings and lending products, allowing it to rapidly take market share while also maintaining a return on equity well above its cost of capital, a trend we expect to continue as the firm expands deeper into the Colombian and Mexican markets.

We typically see cost advantages for banks as stemming from at least one of three primary factors: excellent operating efficiency, a low-cost deposit base, or effective underwriting. Nubank has been extremely successful at developing an impressively lean operating structure. Its efficiency ratio—operating costs over revenue—averaged only 31.8% over the last three years. However, this arguably understates the firm’s performance; its efficiency ratio has moved lower as it has gained scale, coming in at only 27.9% in 2025. This is far lower than traditional banking peers, with Nubank’s two largest competitors, Banco Bradesco and Itaú Unibanco, having efficiency ratios of 47% and 52.9%, respectively, in 2025.

In our view, Nubank’s cost efficiency is driven by its large scale, fully digital model, and constrained marketing budget. With 112 million consumer and small-business customers in Brazil, including 57.6 million active credit cards, Nubank operates at a national scale with none of the costs associated with running thousands of physical branches. Historically, banking in Brazil and in many Latin American countries has featured heavily concentrated banking sectors with high fees, leading to poor penetration of banking services. Nubank’s cost advantages have allowed it to operate with a more attractive service profile, positioning it to rapidly take significant market share while also enjoying impressive profitability. The firm’s strong value proposition has allowed it to drive rapid growth despite limited marketing spending; Nubank’s marketing budget was only 2.7% of revenue in 2025, down from 4.7% in 2022. While we fully expect rivals to work to adapt to the rise of digital banking, this will be a slow process, as many of their customers still prefer or need branch services, and major Brazilian banks suffer from far higher labor costs.

While online deposits have allowed Nubank to rapidly reach scale at modest cost, use of this funding source is not without consequence. Enabled by the lack of physical infrastructure, savings accounts at online banks typically offer higher interest rates to depositors, and the Brazilian market is not an exception. Additionally, unlike its traditional peers, Nubank does not have any non-interest-bearing demand deposits. As a result, Nubank does operate at a cost of funds disadvantage to its larger peers, primarily due to its higher deposits costs.

We believe Nubank’s cost of funds disadvantage is more than outweighed by operating efficiencies. Currently, regulations require Brazilian banks to make compulsory deposits at the central bank based on a percentage of their demand, savings, and time deposits. Notably, compulsory deposits tied to interest-free demand deposits do not pay any interest. This reduces the advantage of having access to this low-cost pool of funds because of the headwind to overall portfolio yield. Moreover, Nubank is a consumer lender in a region with very high interest rates. As a result, the firm’s average yield on its receivables portfolio was 30.8% in 2025. This dilutes the cost of funds disadvantage, as its significance is tied to how high or low portfolio yields are. A 1% cost of funds disadvantage matters far less when a firm is lending at 30% than if it were lending at 6%.

We expect Nubank to comfortably outearn its cost of equity, particularly as its Mexican and Colombian efforts gain scale. The firm is acting as a disruptive force in the Latin American banking ecosystem, which has typically featured significant concentration, high fees, and low financial inclusion. We expect the firm to continue to benefit from increasing adoption of digital banking and payments in the region, providing a tailwind to its business model and growth. Nubank’s strong returns and operating margins are protected by meaningful cost advantages thanks to its impressive operating efficiency.

Nubank has a narrower line of lending products than its larger rivals. Branching out into new loan categories like auto loans could significantly expand its total addressable market.

Nubank’s cost-advantaged operating model shows strong signs of portability. Expansion into new markets could extend the company’s growth runway more than expected.

Cost efficiencies from scale could be more significant than projected, leading to further expansion in the firm’s already impressive profitability.

Consumer debt levels in Brazil are at an all-time high. Additional loan growth could be more difficult than expected if consumers cannot support additional debt.

Nubank’s traditional banking competitors could adapt faster than expected, eroding the firm’s cost advantage over time.

BBVA México is a strong operator that has made significant investments in digital banking. Nubank could face stiffer competition in Mexico than it has experienced in Brazil and commensurately softer returns.