Nubank's Q1 Earnings: A Transient Storm Cloud Over a Digital Banking Titan?

Nubank’s Q1 2025 earnings revealed a company navigating headwinds with discipline, yet its stock plummeted 6% post-release due to a gross profit miss. For contrarian investors, this reaction masks a compelling opportunity: a digital banking giant capitalizing on secular growth in Latin America, even as temporary macro pressures cloud its near-term margins. Let’s dissect why the sell-off is overdone—and why now could be the time to position for years of compounding returns.

The Growth Engine Roars On

Nubank’s user base surged to 118.6 million customers globally, adding 4.3 million in just three months, a 19% annualized growth rate. In Brazil, its home market, Nubank now serves 59% of the adult population, with 30% of users designating it as their primary bank—a staggering figure for a digital-first institution. Crucially, engagement metrics shine: 98.7 million monthly active users (83% of total customers) and a $11.2 monthly average revenue per active customer (ARPAC), up 17% year-over-year. This is not a flywheel slowing down; it’s accelerating.

Revenue Growth Defies Gravity—Margins Are the Speedbump

Revenue hit $3.2 billion, a 40% year-over-year leap, driven by a 62% expansion in its interest-earning portfolio. Even the “miss” in gross profit—down 3% sequentially to $1.3 billion—is misleading. The margin compression to 40.6% was self-inflicted in the right way:
- Brazil’s 14.25% SELIC rate (its highest in two decades) hasn’t been fully repriced into loan portfolios yet.
- Mexico’s strategic deposit pricing prioritized customer acquisition over short-term profitability as it secured its banking license.

These are long-term bets. Once Brazil’s rates stabilize and Mexico’s deposits scale, Nubank’s cost of funds will drop while its loan yields rise. The net interest margin (NIM) already hit 17.5%, and the risk-adjusted NIM (a metric Nubank pioneered) remains robust at 8.2%, despite intentional margin compression.

Risk Management: Steady as She Goes

Nubank’s credit metrics underscore its prudent underwriting:
- 15-90 days past due NPL ratio rose just 60 basis points to 4.7%, in line with expectations.
- 90+ days delinquency fell to 6.5%, a 50-basis-point improvement.

This stability is critical. In a region where economic volatility is the norm, Nubank’s ability to keep defaults in check—while growing loans at 62% annually—proves its credit models are battle-tested.

The Contrarian Play: Buy the Dip, Own the Decade

The stock’s 6% post-earnings drop reflects fear of margin pressures, not fundamentals. Here’s why this is a contrarian’s dream:

1. Excess Capital Cushion: Nubank holds $4.3 billion in excess liquidity, providing a buffer to weather macro storms and fund expansion.
2. LatAm’s Digital Banking Tsunami: Only 37% of adults in Latin America use digital banking today. Nubank’s $26 average revenue per customer in mature cohorts shows the monetization runway.
3. Mexico’s Tipping Point: With its banking license secured, Mexico’s deposits jumped 18% sequentially. This market alone could add $10 billion+ in revenue over five years.
4. Valuation Discount: At a 12x forward P/E (vs. its 5-year average of 22x), the stock is pricing in permanent margin damage—a scenario unlikely given Nubank’s operational control.

Final Call: This Is a Multiyear Opportunity

Margin pressures are a speedbump, not a roadblock. Nubank’s $557 million net income (up 74% YoY) and 27% ROE prove its model works. The SELIC rate peak is likely in sight, and Mexico’s deposits will eventually turn profitable as scale tips. For investors with a 3-5 year horizon, this 6% pullback is a gift.

The world’s largest digital bank by users is trading at a valuation that ignores its dominance in Brazil, its Mexico breakout, and Colombia’s nascent growth. This is the kind of disconnect that creates 10-baggers—and it’s happening now.

Act now. The storm will pass. The titan will rise.