Shares of Brazilian financial technology (fintech) company Nu Holdings (NU 1.66%) dropped on Wednesday after the company reported financial results for the third quarter of 2023. As of 11:50 a.m. ET, Nu stock was down about 8%, but it had been down nearly 11% earlier in the day.
Wait, wasn't the quarter good?
Today's drop for Nu stock is a bit of a head-scratcher. Investors can certainly find things to nitpick -- there's always something to be concerned with. But Nu's Q3 report and the subsequent response from Wall Street were overwhelmingly positive.
In Q3, Nu experienced everything that investors want to see. The company is adding new customers at an impressive rate, activity per customer is up, revenue is soaring, and its profit margins improved, leading to a massive year-over-year improvement in net income.
Putting specifics to the numbers, Nu's Q3 revenue was up 64% year over year, surpassing $2.1 billion. It was even up 53% year over year after adjustment for foreign currency fluctuations. Moreover, Nu had net income of $303 million, thanks to improved margins. And this was night-and-day better than the $8.4 million it reported in the prior-year period.
Multiple analysts raised their price targets for Nu stock today in light of its strong Q3, which again seems to contradict the reaction from the stock market.
What to watch for now
Nu offers a wide range of financial products and services, which includes loans. This may be the thing that the market is most concerned with, so it bears watching in coming quarters.
In Q3, Nu's nonperforming loans that are over 90 days delinquent for its Brazilian portfolio increased to 6.1% of the total loan portfolio. That's up from the 5.9% it reported in the previous quarter, and it's increased for seven consecutive quarters now.
Management points out that the increase was expected and that it's still performing well compared to peers. Moreover, nonperforming loans between 15 and 90 days delinquent have gone down for two consecutive quarters, which suggests nonperforming loans over 90 days delinquent could stabilize in the near future.
If Nu started losing more money on loans, it wouldn't be good for the business. But for now, it's sustainable, and the negative trend could soon stabilize.
