NU Holdings (NU) Q1 2025: Customer Scale Drives Revenue Growth, Margin Investment Signals Long-Term Ambition
NU Holdings delivered robust customer and revenue growth in Q1 2025, adding 4.3 million new customers and expanding across Brazil, Mexico, and Colombia. While profitability remains strong, management is deliberately investing in deposit franchises and credit expansion, signaling a focus on long-term value creation over near-term margin maximization.
Summary
- Customer Base Expansion: 4.3 million customers added in Q1, total reaches 119 million with high activity ratios.
- Revenue and Profit Growth: Net income up 74% YoY to $557 million, gross profit up 32% YoY, but sequential margin pressure from credit loss allowances and deposit investments.
- Strategic Market Investment: Aggressive investments in Mexico and Colombia deposit franchises, leveraging digital banking model for future growth.
- Margin and Risk Watchpoint: Short-term margin pressure from higher credit costs and funding investments, with long-term profitability reliant on execution in new markets.
Performance Analysis
NU Holdings posted another quarter of high-velocity growth, adding 4.3 million customers to reach 119 million across Latin America. Monthly active customers hit nearly 100 million, with an activity ratio above 83%, reflecting deep engagement. The Brazilian market remains the anchor, with 105 million customers and strong indicators of principality—60% of adult Brazilians are customers, and about 60% use NU as their primary bank.
Financial results were equally robust: Net income reached $557 million, up 74% year-over-year (YoY) on an FX-neutral basis, while gross profit grew 32% YoY to $1.3 billion. However, gross profit declined 3% sequentially, with margins dipping to 36.6% due to higher credit loss allowances and increased funding costs, especially in Brazil. Net interest income (NII) rose 34% YoY to $1.8 billion, and deposits grew 48% YoY to $31.6 billion, driven by strong momentum in Mexico and Colombia.
- Credit Portfolio Growth: Total loans reached $24.1 billion, up 8% QoQ and 40% YoY, with a record $20.2 billion in loan originations (+64% YoY).
- Deposit Franchise Strength: Deposits in Mexico and Colombia more than doubled YoY, while Brazil's deposits outperformed typical Q1 seasonality.
- Efficiency Gains: Operating efficiency ratio improved to 24.7%, among the best in global fintech, aided by scale and a $47 million DTA credit.
Short-term margin pressure is evident, but the business is demonstrating powerful operating leverage as newer customer cohorts begin their monetization curves. The digital banking model’s cost to serve remains below $1 per customer, unlocking scalable profitability as revenue per active customer (RPAC) matures.
Executive Commentary
"While 100 million monthly active customers position us as perhaps the largest financial institution in Latin America in terms of number of customers, I would like to quickly provide a high-level reminder of the big opportunity we still have ahead of us... We’re doubling down, we’re investing our earnings to close the distance between principality and market share and to expand the size of the market itself."
Davi Vélez, Founder, Chief Executive Officer and Chairman
"Net income reached at $557 million in Q1, up 74% -over-year on an effects neutral basis. As expected, sequential growth was more moderate due to the typical first quarter seasonality, but we still delivered another quarter of very strong bottom line performance. This result translated into a 27% annualized ROI, even while holding over $4 billion in excess capital across our GEOs and at the holding company."
Guilherme Lago, Chief Financial Officer
Strategic Positioning
1. Digital Banking Model: Scale with Operating Leverage
NU’s digital banking model, which leverages technology and automation, enables the company to serve a massive customer base at a cost below $1 per customer. As cohorts mature, RPAC grows from ~$5 in year one to over $25 after seven to eight years, with incumbent banks at $40+. This cost advantage is the core engine for long-term margin expansion as product adoption deepens.
2. Market Penetration and Principality
In Brazil, NU has achieved 60% penetration of the adult population, with ~60% using NU as their primary bank. However, gross profit market share remains only 5%, highlighting significant upside as the company cross-sells and monetizes its base. In Mexico, customer growth (+70% YoY) and deposit expansion signal early success, further boosted by a newly approved banking license that will accelerate product rollout.
3. Proactive Credit and Deposit Investments
Management is deliberately investing in deposit franchise growth in Mexico and Colombia, accepting short-term margin compression to establish low-cost, sticky funding. Credit expansion is disciplined, with AI-enhanced underwriting and a shift toward secured lending (payroll and FGTS loans), which management views as a multi-year growth lever with lower risk and strong profitability potential.
4. Geographic Diversification and Long-Term Internationalization
While Brazil, Mexico, and Colombia remain the focus, management reiterated that digital banking is a global opportunity. Expansion beyond Latin America is a long-term ambition, but current capital and operational resources are prioritized for scaling and deepening share in existing markets.
5. Risk Management and Credit Quality
Risk discipline remains central: Credit loss allowances increased seasonally, but coverage ratios were recalibrated conservatively. Management continues to front-load provisions and adjust lending criteria to protect long-term asset quality, even if it means slower short-term growth in riskier segments.
Key Considerations
This quarter underscores NU’s commitment to long-term value creation, even at the expense of near-term margin pressure. Strategic investments in deposit franchises and disciplined credit expansion are designed to unlock future earnings leverage as digital adoption accelerates across Latin America.
Key Considerations:
- Customer Monetization Lag: New cohorts take years to reach full revenue potential, so near-term earnings may lag customer growth as monetization ramps.
- Margin Compression Trade-Off: Short-term margin pressure from higher credit loss allowances and funding costs is a deliberate investment in future scale and market share.
- Secured Lending Opportunity: Payroll and FGTS lending are still nascent but offer lower risk and large addressable profit pools for NU to penetrate.
- Deposit Franchise Maturity: As deposit bases in Mexico and Colombia mature, funding costs are expected to trend down, supporting future NIM expansion.
- Operating Leverage Potential: Cost to serve remains extremely low, positioning NU for significant margin expansion as revenue per customer rises.
Risks
Key risks include execution in new markets, particularly the challenge of balancing rapid customer acquisition with prudent credit underwriting and funding cost management. Short-term margin volatility may persist as investments in Mexico and Colombia scale. Additionally, macroeconomic shifts, regulatory changes, and competitive responses from incumbent banks could impact growth and profitability, especially as NU pushes deeper into secured lending and international expansion.
Forward Outlook
For Q2 2025, NU management did not provide specific quantitative guidance but emphasized:
- Continued aggressive investment in Mexico and Colombia deposit franchises, accepting near-term margin pressure.
- Further ramp-up of secured lending products, including public and private payroll loans in Brazil.
- Ongoing focus on operating leverage and cost discipline, with expectations for efficiency ratios to remain best-in-class.
Full-year 2025 guidance was not updated, but management reiterated that long-term value creation and market share expansion remain the priorities, even if that means short-term earnings volatility.
Takeaways
NU’s Q1 2025 results confirm the strength of its digital banking model and its ability to scale profitably, but also highlight management’s willingness to trade near-term margin for future market leadership and earnings power.
- Customer and Revenue Growth: High-velocity customer acquisition is translating into robust top-line growth, but monetization lags as new cohorts ramp.
- Strategic Margin Investment: Deliberate margin compression in Mexico and Colombia is a calculated move to secure long-term funding and credit scale.
- Execution Watchpoint: Investors should monitor the pace of deposit franchise maturity, secured lending adoption, and margin recovery as key drivers of future profitability.
Conclusion
NU Holdings continues to deliver impressive growth and engagement metrics while investing strategically for future market dominance. Near-term margin pressure is a function of deliberate capital allocation to maximize long-term value, not operational weakness. The core digital banking model’s scalability and efficiency remain intact, positioning NU for sustained outperformance as Latin America digitizes.
Read-Through
NU’s performance and strategic direction reinforce the competitive threat digital banks pose to incumbents, especially in underpenetrated, emerging markets. The willingness to invest in deposit franchises and absorb short-term margin hits for long-term growth is a model likely to be emulated by other fintechs. Incumbent banks in Latin America and similar markets should expect further disruption in both unsecured and secured lending, with digital-first players leveraging technology and scale to compress costs and expand market share. The industry read-through is clear: operating leverage and customer engagement, not just product breadth, will increasingly define winners in global consumer banking.