NU Three Straight Profitable Quarters. Nu's ARPAC Just Broke Into Double Digits.

Three in a Row Is No Longer a Coincidence

Nu Holdings' third quarter of 2023 - three months ended September 30, 2023 - is the quarter where "is this sustained?" stops being a fair question. Net income attributable to shareholders reached $303.0 million, up 35% quarter-over-quarter from Q2's $224.9 million (see nu/2023-06) and more than 38 times the $7.8 million Nu posted in its only other profitable quarter, Q3 2022. Three consecutive profitable quarters, each larger than the last ($141.8 million in Q1, per nu/2023-03, then $224.9 million, then $303.0 million), is a genuinely different claim than the one-off Q3 2022 blip this series has tracked since nu/2023-03 first flagged it. Total revenue hit a record $2,136.8 million, up 64% year-over-year in nominal dollars (53% on Nu's preferred FX-neutral basis), and for the nine months ended September 30, 2023, Nu has now booked $669.7 million in cumulative net income against a $67.0 million loss for the same nine months of 2022.

Monthly ARPAC^» broke into double digits for the first time this quarter, reaching $10 - a threshold management called out explicitly on the call as a milestone, with more mature customer cohorts already monetizing at $26/month. The stock closed the quarter at $7.25, down modestly (-8.1%) from $7.89 at the end of Q2 2023 despite the larger profit - a pullback that reads more like normal volatility around a stock that had already rallied 66% the prior quarter than any reaction to this quarter's actual numbers (see Target Valuation Range).

The Prescription

Nu should keep compounding exactly the two things driving this quarter: customer growth (89.1 million customers, +18.7 million YoY, 83% monthly activity rate) and ARPAC expansion (+18% YoY FX-neutral for what management noted on the call is now "yet another quarter" of sustained ARPAC growth). The double-digit ARPAC milestone matters less as a round number and more as confirmation that the multi-year cohort-maturation story Nu has told since its earliest quarters as a public company (see nu/2022-03) is playing out on schedule - mature cohorts at $26/month against a $10 blended average still leaves years of runway, the same structural argument made every quarter so far, now backed by three consecutive quarters of growing profit to show it's translating into the bottom line.

What Nu should stop doing: letting a genuinely explainable balance-sheet shift go unexplained in its own materials. Cash and cash equivalents fell from $6,175.0 million to $3,213.6 million this quarter, while compulsory and other deposits at central banks more than doubled, from $2,826.9 million to $5,849.4 million - almost a dollar-for-dollar swap (see Beyond the Usual). Nothing about this is concerning once explained, but neither the earnings presentation nor the press release calls it out explicitly; a reader working only from the headline materials could easily read the cash decline alone as a liquidity deterioration it isn't.

Key Financial Metrics

Q3 2023 vs. Q3 2022, consolidated, reported in USD - Nu reports natively in US dollars, so no FX conversion is needed

Metric	Q3 2023	Q3 2022	YoY
Total revenue	$2,136.8M	$1,306.9M	✅ +64%
Gross profit	$914.8M	$427.0M	✅ +114% (margin: 42.8% vs. 32.7%)
Total operating expenses	$503.3M	$421.9M	✅ +19%, well below revenue growth
Profit (loss) before income taxes	$411.5M	$5.1M	✅ +80x
Profit (loss) for the period	$303.0M	$7.8M	✅ Third straight profitable quarter, +35% QoQ vs. Q2 2023's $224.9M
Earnings per share - basic	$0.0638	$0.0017	✅ +37x
9M 2023 profit (loss) for the period (nine months)	$669.7M	$(67.0)M	✅ Swung to a profit

Balance sheet metric	Sep 2023	Jun 2023	Change
Total assets	$35,693.2M	$33,608.1M	✅ +6.2%
Total liabilities	$29,803.9M	$27,963.5M	✅ +6.6%
Total equity	$5,889.3M	$5,644.6M	✅ +4.3%
Deposits	$19,117.2M	$18,033.7M	✅ +6.0%
Loans to customers	$2,690.0M	$2,433.2M	✅ +10.6%
Cash and cash equivalents	$3,213.6M	$6,175.0M	⚠️ -48.0% (see Beyond the Usual - offset by central-bank reserves, not a liquidity decline)

Note: management's own press materials quote revenue growth as "53% year-over-year" using the constant-currency^» figure; the 64% figure in the table above is the nominal USD growth rate recomputed directly from the filed statements ($2,136.8 million vs. $1,306.9 million), consistent with how this series has reported nominal figures throughout (see nu/2022-03). Gross margin expanded again, to 42.8% from 41.8% in Q2 2023 - the fourth consecutive quarter of margin expansion in this series. Credit loss allowance expense rose to $627.5 million from $375.5 million a year ago (+67%), still slower than gross revenue growth, continuing the trend flagged in nu/2023-06.

Key Operational Metrics

• Customers: 89.1 million (+18.7 million YoY, +27% YoY), up from 83.7 million last quarter (see nu/2023-06). Monthly activity rate: 83%, up one point from 82% the prior two quarters. Active customers grew 29% YoY.
• Monthly ARPAC: reached $10 this quarter - management explicitly called this out as "a new milestone, breaking into double digits" on the call - up 18% YoY FX-neutral, continuing the unbroken climb: $8.6 (Q1'23) → $9.3 (Q2'23) → $10 (Q3'23). More mature cohorts are already at $26/month.
• Geography: Mexico crossed 4.3 million customers this quarter (per the call), with over $150 million accrued in Cuenta Nu deposits there by quarter-end. Colombia reached nearly 800,000 customers, with a savings-account launch there flagged as upcoming (not yet live this quarter). Slightly more than 1.5 million net new customers were added across Brazil, Mexico, and Colombia combined during the quarter, per management's remarks.
• Segment reporting: still a single reportable operating segment, unchanged from every prior quarter covered.

Beyond the Usual

Cash and cash equivalents fell 48% quarter-over-quarter ($6,175.0 million to $3,213.6 million) while compulsory and other deposits at central banks - a separate balance-sheet line covering mandatory reserve requirements Nu's regulated subsidiaries must hold at the Central Bank of Brazil (BACEN) and equivalent Mexican regulators - more than doubled, from $2,826.9 million to $5,849.4 million. The roughly $3.0 billion moving one way almost exactly matches the roughly $2.96 billion moving the other, consistent with a regulatory-reserve requirement scaling up alongside Nu's growing deposit base (deposits themselves grew a more modest 6.0% this quarter) rather than any deterioration in Nu's actual liquidity position. This is genuinely interesting footnote-level context - a reader looking only at the cash line would see a worrying 48% drop that the full balance sheet shows isn't one.

Nu's total provision for lawsuits and administrative proceedings held steady at a low level ($5.4 million, up modestly from $4.7 million last quarter) following the PIS/COFINS tax-dispute settlement flagged in nu/2023-06 - no new material contingent-liability items emerged this quarter.

What Management Emphasized on the Call

Management leaned into the ARPAC double-digit milestone as the quarter's headline framing device - "breaking into double digits at US$10" was delivered as a specific, quotable moment rather than folded into the usual growth recap, a more deliberate marketing choice than in prior quarters' calls. The broader growth-and-profitability framing continued in the same register set in nu/2023-06, with net interest margin (NIM^») explicitly named as reaching "new record highs" - a specific claim about margin expansion that lines up with the gross-margin trend shown in Key Financial Metrics above.

The cash-to-central-bank-reserves shift flagged in Beyond the Usual went unmentioned on the call, consistent with it being a mechanical regulatory-reserve movement rather than a strategic or credit-quality development worth flagging to investors. Mexico and Colombia continued to receive substantive, metric-specific attention (customer counts, Cuenta Nu deposit accrual, an upcoming Colombian savings-account launch) rather than a passing mention, continuing the pattern from nu/2023-06.

Target Valuation Range

Reverse-DCF implied fair value: the current $32.4 billion enterprise value now implies a growth requirement somewhat below the ~25-35% CAGR band established in Q1 and re-confirmed in Q2 (12% WACC) - the market pricing in less optimism even as Nu's own operating numbers (customer growth, ARPAC, margins) didn't decelerate. That's the numeric form of what the P/E and EV/Revenue compression already show: modestly cheap relative to the quarter's own numbers - the stock pulled back slightly even as profit grew 35% quarter-over-quarter, a valuation gap opening up rather than the market catching up to a deteriorating business.

Nu closed Q3 2023 at $7.25 (September 29, 2023), against 4,754,909,700 total shares outstanding (3,671,597,558 Class A, 1,083,312,142 Class B):

Market cap → enterprise value	Q3 2023
Share price (period-end)	$7.25
Shares outstanding	4,754,909,700
Market capitalization	~$34.5B
Total liabilities	n/a (net cash basis used)
Less: cash and equivalents	$3,213.6M (vs. $1,085.9M interest-bearing debt + $32.0M leases)
Enterprise value	~$32.4B

Market cap is down modestly from the $37.4 billion implied at the end of Q2 2023 despite this quarter's larger profit.

Peer-multiple sanity check	Q2 2023	Q3 2023	Change
Revenue basis	TTM	TTM (Oct 2022-Sep 2023), ~$7,074.6M	-
Enterprise value	~$32.0B	~$32.4B	- flat
EV/Revenue	~5.1x	~4.6x	✅ down
P/B	~6.6x	~5.9x	✅ down
P/E (annualized)	~41.6x	~26.8x	✅ down, profit growing faster than stock price

Re-running the reverse-DCF sanity check from nu/2023-03 and nu/2023-06 with a third data point: at a $32.4 billion enterprise value and the same 12% WACC assumption, Nu's Q3 2023 annualized profit run-rate (~$1.2 billion) implies the market is now pricing in a somewhat less optimistic growth trajectory than it was priced for after Q2 - the P/E and EV/Revenue compression above are the same signal from a different angle. With three consecutive profitable quarters, each larger than the last, now on record, this is the first quarter in this series where the DCF base is genuinely three data points deep rather than one or two - still not a long history, but enough to say the compression looks more like the market catching its breath after Q2's 66% rally than a reassessment of the business itself, since nothing in this quarter's operating numbers (customer growth, ARPAC, margins) decelerated.

---