NU : Another Earnings Explosion Coming?
Day After 3 Days Break.
On Tue, 18 Feb 2025 investors returned after a 3-day weekend break.
The 3 stock indexes drifted aimlessly throughout the session before settling slightly higher, just before market closed for the day.
Notably, the S&P 500 notched its first record close since 23 Jan 2025, while market waited patiently for Wednesday release of the Fed’s January 2025 Minutes of meeting.
By the time it was 4:00pm:
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DJIA: +0.02% (+10.26 to 44,556.34).
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S&P 500: +0.24% (+14.95 to 6,129.58).
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Nasdaq: +0.07% (+14.49 to 20,041.26).
Ground Sentiments.
Harris Financial Group, Managing partners, Jamie Cox summed up sentiments on the ground:
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US market is bouncing around from one thing to another, and that knocks investors off course.
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Rampant uncertainty has damped investors’ moods.
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Many (traders) are unsure of what regulatory changes and trade policies could come.
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Bearishness among amateur traders is at its highest level since November 2023. Looks like its return is imminent. (see above)
What’s In Store ?
Q4 earnings season has come around the final bend.
According to LSEG data,
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As of Fri, 14 Feb 2025, 383 companies in the S&P 500 having reported their earnings.
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Of those, 74% have posted better-than-expected results.
Heading into Wednesday, how is US market going to behave, given that no mega-cap companies are reporting their quarterly earnings.
For starters, US pre-market indicators (minimally) are in the “green” zone with marginal gains recorded.
Secondly, it is hoped that investors will throw caution to the winds regarding Trump’s new tariffs announced on Tuesday evening. (see below)
On Tue, 18 Feb 2025, the US president has announced that he intended to impose a 25% tariffs on imports of (a) auto, (b) pharmaceutical and (c) semiconductors - his latest effort to upend international trade.
According to the media, automobiles levies could be effected as early as 02 Apr 2025 - a day after his Cabinet deliver reports to him outlining options for a range of import duties.
While the concerns surrounding these potential tariffs are valid, many believed Trump is applying “scare” tactics on its trading partners, hoping for a “better” trade outcome for US exports.
Case in point - In 2018 & 2019 during his first term, Trump had used similar 25% tariff trick.
When US Commerce Department conducted a national security investigation into auto imports and found that they weakened the domestic industrial base, there was no follow up, leaving the tariff authority from that probe to expire.
Back to current day, for all these potential tariffs to be implemented, has it boils down to a case of who throws in the towel first - US or its “allies” ?
$Nu Holdings Ltd.(NU)$
On a brighter note (hopefully), I cannot wait to find out digi-bank NU Holdings impending quarterly earnings report.
Nu is expected to post its fourth-quarter earnings report on 20 Feb 2025, after market closing.
Motley Fool thinks that there are 7 reasons to buy the stock ahead of its earnings.
1. Early mover's advantage.
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Nu is based in Brazil, but it also provides banking services in Mexico and Colombia.
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As a digital-only direct bank, it expanded much faster than its brick-and-mortar competitors.
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More than 70% of Latin America's population is unbanked, according to the World Bank, yet the region's internet penetration rate soared to 81% in 2023, from 46% in 2013.
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That makes it a fertile market for digital-first banking services.
2. Expanding customer base.
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Nu's customer base more than tripled from 33.3 million (end 2021) to 109.7 million in Q3 2024.
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Most of its growth comes from Brazil, where it serves over 100 million customers and continues to add about 1.1 million new customers each month.
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Its Mexican market also grew by 1.2 million customers to 8.9 million customers in its latest quarter.
3. Rising activity rate boost revenue per customer.
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Over the past few years, Nu expanded its ecosystem with more credit cards, crypto trading tools, and e-commerce services.
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As a result, its activity rate (its active customers divided by customers) grew to 84% in latest quarter from 76% in 2021.
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The rising engagement boosted its monthly average revenue per active customer to $11 in Q3 2024, from $4.50 (end 2021) .
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The robust growth indicates its ecosystem is getting stickier as it expands.
4. Not overspending.
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High-growth fintech companies often fall into a margin-crushing trap of rolling out too many loss-leading services to lock in new customers.
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NU's monthly average cost to serve each active customer held steady at $0.80 from 2021 to 2023.
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It rose slightly to $0.90 in H1 2024 and dipped to $0.70 in Q3 2024.
5. Soaring profits.
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Both robust growth and disciplined spending helped Nu turn profitable on a generally accepted accounting principles (GAAP) basis in 2023.
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For FY 2024, analysts expect net income to surge +92%, as it continues to scale up its business.
6. Plenty of irons in the fire
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Nu still has plenty of ways to grow its business over the next few years.
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It will likely (a) enter more countries, (b) continue to beef up its artificial intelligence (AI)-powered customer data, financial assistance chatbots, and cybersecurity tools.
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It is likely to tether more retailers to its Nu Shopping e-commerce app that has reached 255 million visits in 2023.
7. Valuation.
From 2023 to 2026,
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Analysts expect Nu's revenue and earnings per share to grow at compound annual rates (CAGR) of 34% & 54%, respectively, in USD terms - from 2023 to 2026.
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These are exceptional growth rates for a stock that trades at 24x forward earnings.
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NU looks lik its value-for-money, relative to its growth potentials.
Potential Concerns.
NU’s valuations are being compressed by near-term concerns like (1) inflation and (2) currency devaluation challenges in Brazil and Mexico.
Investors who believe above headwinds will eventually pass, NU looks like a bargain now.
Stock Performance.
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Nu Holdings has shown strong +27.38% YTD performance, as of 18 Feb 2025.
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With the price rising from $10.63 at the start of 2025 to its current level of $13.54.
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Despite a recent -1.17% dip, NU has demonstrated resilience, maintaining its position above the $13 mark.
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It's impressive growth metrics, included - (a) 56.56% YoY revenue gain and (b) a 82.61% net income surge (as of September 2024).
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The stellar earnings have contributed to investor confidence.
Seriously, is/are there any reason/s, not to like NU Holdings ?
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Do you think US market will disregard Trump’s tariff threats and cont’d to soar ?
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Do you think digi-bank NU Holdings will beat Wall Street analysts’ forecasts again ?
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