NU Nine Years, One Profitable Quarter - While Delinquencies Kept Climbing

A Profit Nine Years in the Making, Framed as a Beginning

Nu Holdings reported a $7.8 million net profit for the three months ended September 30, 2022 - the first time in the company's nine-year history that it has posted a positive IFRS net income for a quarter, swinging from a $34.4 million loss in the same quarter a year earlier. Revenue reached $1,306.9 million, up 172% year-over-year, and Adjusted Net Income - Nu's own non-IFRS profitability measure - jumped to a record $63.1 million, nearly quadruple last quarter's $17.0 million (see nu/2022-06) and a sharp reversal from the flat Adjusted Net Income growth flagged in that post.

CEO David Vélez chose a deliberately modest word for it on the earnings call: Nu had reported "breakeven at the holding level," not a profit milestone to celebrate. That framing matters, because the underlying numbers this quarter are genuinely mixed rather than uniformly good. Credit delinquency kept rising - 90+ day NPLs^» reached 4.7%, up from 3.7% last quarter and the highest level since the 2020 pandemic spike - and, despite the accounting profit, operating cash flow for the quarter alone was actually negative (see Key Financial Metrics). The headline profit is real and worth taking seriously as a milestone; it just isn't the whole story of the quarter.

The Prescription

Nu should keep doing exactly what turned this quarter profitable: letting net interest margin expand as the credit book matures and funding costs stay disciplined, rather than chasing growth that would reintroduce the provisioning drag flagged in nu/2022-06. NIM^» reached 11.1% this quarter, up from 9.7% last quarter and 7.7% a year ago - a genuinely structural improvement, not a one-quarter blip, since it's compounding on a deposit base that's now $14.0 billion and funded at 91% of Brazil's CDI risk-free rate. That's the actual engine behind this quarter's profit, more than the growth-superlative metrics (customers, purchase volume) that dominate Nu's own presentation.

What Nu should stop doing: continuing to frame delinquency increases as background noise in an underwriting-focused section of the deck, when 90+ day NPLs have now risen for three consecutive quarters (3.0% → 3.7% → 4.7%) even after accounting for the write-off methodology change flagged last quarter that should, if anything, make the ratio look better than a strict apples-to-apples comparison would. Management's own materials label this "delinquency continued to increase, following macro trends" - true, but a trend that's now three quarters long deserves more than a one-line caption, especially in the same quarter Nu is asking investors to treat a first-ever profit as a durable inflection point.

Key Financial Metrics

Q3 2022 vs. Q3 2021, consolidated, reported in USD - Nu reports natively in US dollars, so no FX conversion is needed

Metric	Q3 2022	Q3 2021	YoY
Total revenue	$1,306.9M	$480.9M	✅ +172% nominal (+171% FX-neutral)
Gross profit	$427.0M	$223.9M	⚠️ +91% (margin: 32.7% vs. 46.6%)
Credit loss allowance expenses	$(375.5)M	$(127.0)M	⚠️ +196% - still outrunning revenue growth
Total operating expenses	$(421.9)M	$(245.7)M	⚠️ +72%
Profit (loss) before income taxes	$5.1M	$(21.8)M	✅ Nu's first quarterly pretax profit
Profit (loss) for the period	$7.8M	$(34.4)M	✅ Nu's first-ever quarterly net profit
Adjusted Net Income, non-IFRS	$63.1M	$(1.2)M	✅ Record, nearly 4x Q2'22's $17.0M
Net cash from operating activities (derived, see note)	~$(15.4)M	n/a	⚠️ Negative despite the accounting profit
Total cash and cash equivalents (quarter-end)	$3,692.8M	n/a	⚠️ Roughly flat vs. Q2'22's $3,701.0M

Balance sheet metric	Sep 2022	Dec 2021	Change
Total assets	$26,007.0M	$19,858.7M	✅ +31.0%
Total liabilities	$21,254.3M	$15,416.1M	⚠️ +37.9%
Total equity	$4,752.7M	$4,442.5M	✅ +7.0%
Deposits	$14,040.2M	$9,667.3M	✅ +45.2%
Credit card receivables + loans to customers (net)	$8,591.1M	$5,975.3M	✅ +43.8%

As in the prior quarter, Nu's interim filing only discloses cash flows on a cumulative nine-month basis - the operating cash flow row above is derived by subtracting H1 2022's already-published total (nu/2022-06: $542.6M operating cash flow) from this filing's nine-month total ($527.2M operating cash flow). The arithmetic shows Q3 alone actually consumed cash from operations - roughly $15.4 million - even though the income statement shows Nu's first profitable quarter. The gap is a working-capital story, not a red flag on its own: credit card receivables and loans to customers grew faster than deposits could fund them this particular quarter, the mirror image of the favorable mix flagged in nu/2021-12, and a reminder that an IFRS profit and a cash-generative quarter aren't the same thing for a growing lender.

Gross margin improved sequentially for the first time since the IPO, from 31.4% last quarter to 32.7% - still far below the 46.6% posted a year ago, but a real inflection after two straight quarters of compression (see nu/2022-06). Credit loss allowance expenses grew 196% year-over-year, still ahead of revenue's 172% growth, but the gap between the two growth rates narrowed meaningfully from last quarter's 310%-versus-244% spread - consistent with the credit book's growth beginning to stabilize.

Key Operational Metrics

• Customers: 70.4 million (Sep 2022), up 46% YoY, with 5.1 million net adds in the quarter. Monthly active customers: 57.4 million, activity rate a new record 82% (up from 80% last quarter).
• Monthly ARPAC: $7.9, up 61% FX-neutral YoY - a deceleration from Q2's 105% FXN growth rate, though still a sequential increase in absolute terms ($7.8 → $7.9).
• Monthly cost to serve per active customer: not separately disclosed as a standalone figure this quarter's deck beyond the "$0.8, ~85% lower than incumbents" cost-pillar callout, consistent with prior quarters.
• Credit portfolio: $9.7 billion (credit cards + personal loans), +83% FXN YoY. Personal loans held at 20-21% of the mix, roughly flat versus last quarter, as management continued to hold origination growth deliberately below the credit-card segment's pace.
• Purchase volume: $21.2 billion, up 75% FXN YoY - Nu states it became the #4 cards player in Brazil by this measure.
• Deposits: $14.0 billion, up 73% FXN YoY.
• Net interest margin (NIM)^»: 11.1%, up from 9.7% last quarter and 7.7% a year ago - the single clearest driver of this quarter's profitability inflection.
• Geographic mix: Mexico and Colombia continued growing faster than Brazil by customer count, per management, though neither is broken out with its own revenue or profit figure in this interim filing (annual-only disclosure). Nu continues to report a single reportable operating segment.

90+ day NPLs rose to 4.7% this quarter, up from 4.5% in the year-ago quarter and up sharply from 3.7% last quarter - the third consecutive quarterly increase, even under the methodology change disclosed in nu/2022-06 that should make each successive quarter's ratio look comparatively better, not worse. Management's own materials attribute this to "macro trends" without further specifics. It isn't yet at a level that changes the credit story - Nu's Q3 2022 delinquency remains below the 2020 pandemic peak and management continues to defend its underwriting as more conservative than the Brazilian market average - but a three-quarter rising trend arriving in the same quarter as Nu's first-ever profit is worth tracking closely into Q4, not filed away as old news.

Nu's January 2022 acquisition of Olivia contributed $210,000 of revenue and roughly $6.7 million of net loss for Q3 alone (derived from the filing's nine-month cumulative disclosure of $778,000 revenue / $21.5 million loss, less the already-reported H1 2022 figures of $568,000 / $14.8 million - see nu/2022-06) - a slightly wider quarterly loss than Q2's roughly $5.7 million, breaking the narrowing trend flagged last quarter, though still a modest drag relative to the group's now-positive bottom line.

The related-party disclosure this quarter remains minimal - a handful of ordinary-course credit products extended to executives and board members on standard terms, consolidated and eliminated in the group accounts, consistent with prior quarters and not indicative of anything unusual.

What Management Emphasized on the Call

David Vélez opened by explicitly naming the milestone in modest terms - "breakeven at the holding level" - rather than leading with the word "profit," a notably restrained framing choice for a company's first-ever quarterly net income. He then spent more time than in prior quarters addressing a specific investor concern head-on: Nu's own disclosure showed the company's Average Revenue Per Active Customer sits at roughly one-fifth of incumbent Brazilian banks' ARPAC, which Vélez framed as future monetization upside rather than a competitive weakness - "this creates significant upside in our monetization plan as we continue our product diversification." Whether that gap closes through pricing power or reflects genuine differences in Nu's customer base (skewed younger and, per Vélez, still under-monetized relative to incumbents) isn't something this quarter's filing resolves either way.

On credit, when pressed on the rising NPL trend, both Vélez and COO Youssef Lahrech reiterated the same underwriting-conservatism argument made on the Q1 2022 call - that Nu's delinquency remains structurally below the Brazilian market average across every income band it discloses, a claim the presentation's income-band NPL breakdown does support directionally. Management did not, on this call, connect that defense explicitly to the personal-loan repricing decision flagged in nu/2022-06 - the two threads (cautious personal-loan growth, rising overall delinquency) were presented separately rather than as cause and effect.

Target Valuation Range

No numeric fair-value target yet - one profitable quarter after two loss-making ones this year isn't a big enough sample for a DCF, so the ~4.4x EV/TTM Revenue and ~4.3x P/B below describe today's ~$17.40 billion enterprise value, not a derived target. Bottom line: modestly re-rated versus Q2, but still trading far below its post-IPO multiple - the market gave Nu's first profitable quarter only a partial credit, likely reflecting the same rising-delinquency concern flagged above rather than doubting the profit itself.

Nu closed Q3 2022 at $4.40 (September 30, 2022), up 17.6% from Q2's $3.74 close but still down 53.1% from the $9.38 IPO-day close a year earlier. Using Q3's weighted-average basic share count of 4,683,835,000:

Market cap → enterprise value	Q3 2022
Share price (period-end)	$4.40
Shares outstanding	4,683,835,000
Market capitalization	~$20.61B
Total liabilities	n/a (net cash basis used)
Less: cash and equivalents	$3,692.8M (vs. $486.8M interest-bearing debt + leases)
Enterprise value	~$17.40B

Market cap is up from $17.47 billion last quarter.

Peer-multiple sanity check	Q2 2022	Q3 2022	Change
Revenue basis	TTM (Jul 2021-Jun 2022)	TTM (Oct 2021-Sep 2022), ~$3,977.6M	-
Enterprise value	~$14.26B	~$17.40B	⚠️ up
EV/Revenue	~4.5x	~4.4x	- flat
P/B	~3.7x	~4.3x	⚠️ up
P/E	not meaningful (IFRS loss)	~triple digits annualized (not a real anchor - see note below)	-

Note: this quarter's P/E is 4,683.8 million shares against a $7.8 million quarterly profit, implying an annualized P/E in the low triple digits if this quarter's pace were sustained for a full year - a number that says more about how early Nu's profitability is than about a genuine steady-state earnings multiple, and not one worth treating as a real valuation anchor yet.

A full DCF still isn't warranted: one profitable quarter, arriving after two loss-making quarters this same year, isn't a big enough sample to anchor a multi-year cash-flow projection, especially with 90+ day delinquency still rising and this quarter's operating cash flow itself negative (see Key Financial Metrics above). The peer-multiple read is the honest one - Nu is valued at roughly 4.4x trailing revenue, a meaningful discount to where it traded through most of its first two quarters as a public company, on a business that just proved it can generate an accounting profit but hasn't yet proven that profit is durable through a full credit cycle. The next quarter or two of NPL trends, not this quarter's headline profit, will be the real test of whether the market's partial re-rating was justified.

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