NU Nu's Biggest Profit Yet. Is the Loss-Making Story Actually Over?

The Biggest Profit Yet, With One Asterisk in the Recent Past

Nu Holdings' first quarter of 2023 - three months ended March 31, 2023 - is by a wide margin the company's largest quarterly IFRS profit as a public company: $141.8 million of net income attributable to shareholders. It is not, however, Nu's first profitable quarter - Nu already posted a small, $7.8 million IFRS profit in Q3 2022, before swinging back to a substantial loss in Q4 2022 that dragged full-year 2022 to a $364.6 million net loss overall (worse than FY2021's $165.3 million loss). This quarter's profit is roughly 18 times the size of that one-off Q3 2022 blip, on a book that has otherwise been loss-making since the December 2021 IPO (see nu/2022-03 and nu/2021-12) - the real question this quarter raises isn't whether Nu can post a profit at all (it already has, once, briefly), but whether a profit this size is the start of something sustained rather than another one-off. Total revenue reached $1,618.7 million, up 87% year-over-year, and profit before income taxes swung from a $67.7 million loss a year ago to a $243.6 million profit - a swing of over $311 million in twelve months on a book that was still absorbing rapid credit-loss-allowance growth^» as recently as Q1 2022. Nu's own non-IFRS Adjusted Net Income, which strips out share-based compensation, came in even higher at $182.4 million, implying (per management's own framing on the call) a 14% adjusted return on equity.

The market's read has been more cautious than the numbers alone might suggest: Nu closed the quarter at $4.76, still 49% below its $9.38 close on IPO day (December 31, 2021) and 60% below its $11.85 second-day high - even after a real recovery from the $3.74-$4.07 range the stock spent most of the second half of 2022 in (see Target Valuation Range). The tension worth holding through this post: a business that just crossed from "growth story that loses money" to "growth story that makes money" is still priced well under where the market valued the loss-making version of itself sixteen months earlier.

The Prescription

Nu should keep doing exactly what got it here: converting an already-large, already-engaged customer base (79.1 million customers as of April 2023, +33% YoY, 82% monthly activity rate) into more products and higher balances per customer, rather than chasing incremental new-customer growth in Brazil, where Nu already reaches 46% of the adult population. The credit book's underwriting discipline is the specific thing to protect here - gross profit growth (124% YoY) meaningfully outpaced revenue growth (87% YoY) this quarter, meaning the margin story, not just the top-line story, is now working, and that only holds if credit quality doesn't deteriorate as the loan book keeps compounding.

What Nu should stop doing: leaning on management-defined, non-reconciled figures as the headline profitability number when an actual, audited, IFRS profit now exists to lead with instead. The $182.4 million "Adjusted Net Income" and its accompanying 14% "adjusted ROE" are still built by adding back real share-based compensation cost to shareholders - a habit that made more sense when the alternative was reporting a loss (see nu/2021-12 and nu/2022-03), but now that Nu has a genuine $141.8 million IFRS profit to point to, continuing to foreground the larger, adjusted figure instead of the real one is a framing choice Nu no longer needs to make.

Key Financial Metrics

Q1 2023 vs. Q1 2022, consolidated, reported in USD - Nu reports natively in US dollars, so no FX conversion is needed

Metric	Q1 2023	Q1 2022	YoY
Total revenue	$1,618.7M	$877.3M	✅ +87%
Gross profit	$650.9M	$294.1M	✅ +121% (margin: 40.2% vs. 33.5%)
Total operating expenses	$407.3M	$361.7M	✅ +13%, far below revenue growth
Profit (loss) before income taxes	$243.6M	$(67.7)M	✅ Swung to a profit
Profit (loss) for the period (incl. non-controlling interests)	$141.8M	$(45.0)M	✅ Swung to a profit
Adjusted Net Income, non-IFRS	$182.4M	$10.1M	✅ +18x
Earnings per share - basic	$0.0301	$(0.0097)	✅ Swung positive

Balance sheet metric	Mar 2023	Dec 2022	Change
Total assets	$29,489.4M	$29,916.6M	⚠️ -1.4%
Total liabilities	$24,280.9M	$25,025.8M	✅ -3.0%
Total equity	$5,208.5M	$4,890.8M	✅ +6.5%
Deposits	$15,757.7M	$15,808.5M	⚠️ -0.3% (essentially flat)
Loans to customers	$2,020.2M	$1,673.4M	✅ +20.7%
Cash and cash equivalents	$4,310.5M	$4,172.3M	✅ +3.3%

Gross margin expanded to 40.2% from 33.5% a year ago (both recomputed here directly from the filed statements) - a reversal of the credit-loss-driven compression flagged in nu/2022-03, even though credit loss allowance expense kept growing in absolute terms ($474.8 million this quarter, per the income statement). The difference is that revenue and interest income grew fast enough this time to outrun it, rather than the other way around. Total operating expenses growing just 13% against 87% revenue growth is the clearest evidence of real operating leverage: Nu's cost base is genuinely scaling sub-linearly with its business now, not just growing slower than an exceptional one-off revenue spike the way it did a year ago.

Nu's cash-flow statement this quarter shows a $141.8 million starting profit adjusted through a long list of non-cash items (largest being $491.9 million of credit loss allowance expense added back) before working-capital movements in deposits, loans, and payables-to-network - the same mechanics flagged in nu/2022-03. Total cash and cash equivalents at quarter-end ($4,310.5 million) is the cleanest liquidity figure available.

Key Operational Metrics

• Customers: 79.1 million as of April 2023 (+33% YoY), representing 46% of Brazil's adult population - ✅. Monthly activity rate: 82%.
• Monthly ARPAC^»: reached a record $8.6/month, per management's call remarks, continuing the unbroken climb from $6.7 in Q1 2022.
• Credit portfolio: loans to customers alone grew 20.7% quarter-over-quarter to $2,020.2 million (a narrower balance-sheet line than the "$8.8 billion combined credit card + personal loan" figure management cited in Q1 2022 on the call; this filing's loans-to-customers line specifically covers personal loans, not credit card receivables, which sit in a separate balance-sheet line).
• Geography: Mexico crossed 500,000 customers in the quarter (per the call), continuing the international expansion whose funding (the $650 million syndicated facility) was flagged as a subsequent event in nu/2022-03. Management said on the call that Mexico and Colombia are "beating Brazil at effectively all metrics" at the same stage of each market's build-out - a genuinely notable claim, though one made without the country-level revenue/asset breakout that only appears in Nu's annual (not interim) filings, so it isn't independently verifiable from this quarter's own documents.
• Segment reporting: still a single reportable operating segment - Nu's CEO, as Chief Operating Decision Maker, continues to review the business on a combined basis, unchanged from every prior quarter covered so far.

Beyond the Usual

Tax and civil contingent liabilities both grew faster than the balance sheet did

Nu's disclosed range of "possible" (not yet probable, not accrued) losses from tax lawsuits and administrative proceedings grew to approximately $11.4 million and civil-matter possible losses to $2.9 million, both roughly 60% higher than the $7.1 million and $1.8 million reported as of December 31, 2022 - a faster growth rate than total assets (which actually shrank slightly quarter-over-quarter) or total equity (+6.5%). The accrued provision for lawsuits Nu does recognize as probable grew from $17.9 million to $20.0 million, driven mostly by a jump in the civil-risk component (from $2.1 million to $3.4 million). None of this is disclosed as one specific dispute large enough to name - it reads as broad-based growth in the ordinary-course litigation Nu is exposed to as its consumer credit book scales, consistent with operating a large-scale consumer lender in Brazil, but the growth rate itself is worth tracking against future quarters.

A related-party naming-rights and marketing agreement with Rodamoinho Produtora de Eventos Ltda. - owned by a former Nu board member who left the board in September 2022 - continues to run, per this quarter's related-party disclosure, even after the director's departure. The filing doesn't disclose the agreement's dollar value or remaining term, only that it exists and involves a former director's company.

Nu's credit loss allowance expense of $474.8 million this quarter (up from $275.7 million a year ago, a 72% increase) grew slower than total revenue (87%) for the first time across the quarters covered so far - the mechanical reason gross margin expanded instead of compressing this quarter (see Key Financial Metrics). Whether this is durable operating leverage or a temporary favorable vintage mix in the loan book is exactly the kind of thing a reader should watch in the following quarters rather than assume from one data point.

What Management Emphasized on the Call

Vélez opened by naming the combination directly - "a rare combination of strong growth and increasing profitability through the up and down cycles" - before walking through the Mexico/Colombia comparison to Brazil's own early years, framing both newer markets as "beating Brazil at effectively all metrics" at the same stage. That's a confident, specific claim, delivered with more supporting color (profit-pool share, monthly ARPAC by cohort, credit metrics) than the framing-heavy language management used around non-IFRS metrics in earlier quarters (see nu/2022-03) - a sign the call's emphasis has shifted from defending the growth story to walking through the profitability one now that there's a real number to defend it with.

Management did not address the growing tax/civil contingent-liability figures flagged in Beyond the Usual on the call - unsurprising, since neither rises to a level a call would normally cover, but worth noting given the multi-quarter growth trend. The Rodamoinho related-party arrangement also went unmentioned, consistent with it never having been a topic of prior calls either.

Target Valuation Range

Reverse-DCF implied fair value: the current $18.8 billion enterprise value requires roughly 25-35% CAGR profit growth over the next several years (12% WACC, 3% terminal growth) - broadly in line with, not clearly below, Nu's own 33% customer growth and 87% revenue growth this quarter. That makes this fairly valued to modestly cheap rather than clearly mispriced: Nu is trading at roughly the multiple of a maturing, profitable fintech despite growth rates still closer to a company in its expansion phase, and this is the first quarter where a real, if still early, DCF sanity check is defensible rather than premature.

Nu closed Q1 2023 at $4.76 (March 31, 2023), against 4,714,203,759 total shares outstanding (3,622,860,718 Class A, 1,091,343,041 Class B):

Market cap → enterprise value	Q1 2023
Share price (period-end)	$4.76
Shares outstanding	4,714,203,759
Market capitalization	~$22.4B
Total liabilities	n/a (net cash basis used)
Less: cash and equivalents	$4,310.5M (vs. $651.2M interest-bearing debt + $19.3M leases)
Enterprise value	~$18.8B

Market cap is down from the $36.0 billion implied at the end of Q1 2022 despite total revenue nearly doubling and the business swinging to an IFRS profit over the same period.

Peer-multiple sanity check	Q1 2022	Q1 2023	Change
Revenue basis	TTM	TTM (Apr 2022-Mar 2023), ~$5,533.6M	-
Enterprise value	~$33.2B	~$18.8B	✅ down sharply
EV/Revenue	~14.3x	~3.4x	✅ down sharply
P/B	~7.5x	~4.3x	✅ down
P/E	not meaningful (IFRS loss)	~39.5x (annualized IFRS) / ~30.7x (Adjusted Net Income)	-

A light reverse-DCF sanity check: at an $18.8 billion enterprise value, a 12% WACC (approximating a mid-single-digit Brazil risk-free rate^» plus an equity risk premium appropriate for a still-young, emerging-market fintech), and assuming Nu's Q1 2023 annualized Adjusted Net Income of roughly $730 million grows toward a stabilized run-rate margin over a 10-year explicit period before a 3% terminal growth rate, the current price implies the market is pricing in continued profit growth somewhere in the 25-35% CAGR range over the next several years before decelerating - broadly consistent with, but not obviously more conservative than, the 33% customer growth and 87% revenue growth Nu just posted this quarter. That is a genuinely defensible growth rate given Nu's own trajectory, which is why this reads as fairly valued rather than clearly cheap or expensive; it is not, however, a margin of safety, since the whole case rests on Nu sustaining growth rates that are already decelerating from their 2021-2022 peak (258% revenue growth in Q1 2022 vs. 87% this quarter) as the business matures. This DCF should be treated as a first-pass sanity check, not a precise target - it's Nu's largest quarter with a real, non-adjusted profit to anchor a multi-year projection on (Q3 2022's $7.8 million profit was too small to build a meaningful model around), and one quarter of profitability at this scale is still a thin base for a 10-year model; it will get more reliable as more profitable quarters accumulate in the posts that follow this one.

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