Latin America's Digital Shift Will Drive Financial Service Expansion

Key Takeaways

• Rising digital adoption in Latin America and product innovation are boosting customer acquisition, engagement, and driving long-term topline and profit growth.
  
• Multi-country expansion and advanced tech-driven risk management diversify revenue, lower risk exposure, and support sustainable, scalable earnings.
  
• Intensifying competition, riskier credit exposure, regulatory uncertainty, and rising operational costs threaten Nu Holdings' profitability and ability to sustain growth and innovation.

Catalysts

Provides digital banking platform in Brazil, Mexico, Colombia, the Cayman Islands, and the United States.

• The rapid growth of Latin America's digitally native population, combined with expanding smartphone and internet adoption, is creating a sustained surge in demand for Nu's app-based financial services-fueling long-term customer acquisition, higher engagement, and driving topline revenue growth.
  
• The ongoing transition from cash to digital payments and online banking in historically underserved markets continues to accelerate Nu's transaction volumes and increases opportunities for cross-sell and ecosystem stickiness, supporting robust net margin expansion as digital penetration deepens.
  
• Nu's multi-country expansion (notably in Mexico and Colombia but with plans for further internationalization) strengthens and diversifies its revenue streams while reducing geographic concentration risk, setting the foundation for resilient, compounding earnings over the next decade.
  
• Introduction and scaling of new financial products-such as personal loans, insurance, crypto, and investments-are driving higher ARPU and fee-based revenue, with operating leverage from Nu's efficient tech-driven platform likely boosting profitability and net income as mature cohorts monetize.
  
• Continued investment in proprietary technology and AI-driven credit modeling is improving risk management and reducing non-performing loan (NPL) ratios, positioning Nu for both mitigating credit risk and sustainable net income growth, even if market headwinds or cyclical pressures emerge.

Nu Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nu Holdings's revenue will grow by 78.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 39.3% today to 18.4% in 3 years time.
• Analysts expect earnings to reach $6.1 billion (and earnings per share of $1.07) by about September 2028, up from $2.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $4.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, down from 32.5x today. This future PE is greater than the current PE for the US Banks industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.94%, as per the Simply Wall St company report.

Nu Holdings Future Earnings Per Share Growth

Risks

• Intensifying competition from both incumbent banks digitizing their offerings and new fintech entrants across Latin America could erode Nu Holdings' market share and customer growth rates, potentially impacting future revenue expansion.
  
• A growing proportion of Nu Holdings' loan growth is concentrated in mass-market and less mature credit segments, which increases exposure to subprime consumers and economic cycles; in a downturn or with rising interest rates, this could raise default rates, requiring larger credit loss allowances and pressuring net margins.
  
• As Nu Holdings aggressively invests in product innovation, new technology (including AI), and geographic expansion, operational complexity and rising customer acquisition and compliance costs could offset operating leverage gains and challenge long-term profitability.
  
• Expansion into new lending products and markets exposes Nu Holdings to additional regulatory uncertainty; evolving rules and stricter oversight around consumer credit, data privacy, or anti-money laundering could increase compliance expenses and delay launches, risking both revenues and earnings.
  
• The fast pace of digital adoption and technological disruption in the fintech sector may force Nu Holdings to make sustained, substantial investments in R&D and cybersecurity; falling behind or facing a major breach could damage reputation, lead to client attrition, and reduce earnings quality.

Valuation

• The analysts have a consensus price target of $16.989 for Nu Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $33.0 billion, earnings will come to $6.1 billion, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 11.9%.
• Given the current share price of $15.46, the analyst price target of $16.99 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.