Today's significant decrease in Nu Holdings' stock value is causing concern.
Nu Holdings' (NU) stock is experiencing a dip in Thursday's trading sessions post the company's third-quarter financials release. As of 12:15 p.m. ET, the Brazil-based fintech's share price was down 7.9%.
Nu disclosed its third-quarter earnings results after the market closed yesterday, surpassing Wall Street's expectations in both sales and earnings. Despite the impressive Q3 performance, the company's share price is on a downward spiral today, with investors and analysts growing increasingly pessimistic about Brazil's macroeconomic environment.
Nu delivered impressive results in Q3
The company reported earnings per share of around $0.11 on revenue of $2.94 billion in Q3. Analysts, as gathered by FactSet, had anticipated revenues of around $2.6 billion with a per-share earning expectation of approximately $0.10. Revenue witnessed a significant year-over-year increase of approximately 37%, while earnings per share risen by around 81%.
Nu added approximately 5.2 million new customers during the quarter, ending Q3 with 109.7 million customers, marking a 23% year-over-year increase. Meanwhile, the company recorded an average revenue per customer of $11, indicative of a 25% annual growth rate.
In terms of sales, earnings, user engagement, and monetization metrics, there was little to fault in the quarter's performance. However, Brazil's economic indicators and recent inflation spike have contributed to a shift in investor sentiment towards the stock.
Investors concerned about inflation and interest rates in Brazil
Brazil's economy has failed to meet certain benchmarks and experienced an undesired rise in inflation. As a result, the country's central bank is expected to enforce more interest rate hikes to stem the inflation trend.
Last week, Brazil's banking authority imposed another 50-basis-point increase, raising the core rate to 11.25%. The central bank's incoming leader, Gabriel Galipolo, asserted yesterday that hitting the 3% inflation target remains non-negotiable. While multiple strategies could be pursued to achieve this goal, heightened interest rate hikes appear to be a likely course of action. If interest rates continue to escalate in Brazil, equity valuations could be affected and fintech players, including Nu, may encounter business challenges.
Despite Nu Holdings' impressive third-quarter financials, surpassing expected earnings and sales, investors are wary due to Brazil's inflation and interest rate concerns. As Brazil's central bank enforces additional interest rate hikes to combat inflation, there's a possibility that equity valuations may be affected and fintech companies like Nu could face business challenges in managing their finance and investing strategies.
