The Bear Case on Nubank
Nu Holdings has dazzled investors with growth, but profitability and expansion risks tell another story.
Most of the write-ups I’ve come across on Nu Holdings has been overwhelmingly bullish, often highlighting its rapid customer growth and disruptive model. But every great investment story has two sides.
Recently, a friend of mine who works as a banking analyst shared a different perspective—one that questions whether Nu’s current valuation truly reflects the risks ahead.
I thought it was worth sharing with you, as a way to balance the conversation around this fintech giant.
The core concern is Nu’s structural profitability gap compared to traditional banks. Despite strong user acquisition and product expansion, Nu’s ROE and net interest margins remain underwhelming.
A significant portion of its business is tied to credit cards in Brazil—a segment historically prone to volatility and defaults during downturns. As Nu deepens its lending operations and moves into riskier credit categories, the thesis questions whether the company can balance asset growth with sound credit quality without eroding margins.
Beyond Brazil, Nu’s expansion into Mexico and Colombia is also seen as a major question mark. While these markets present large addressable populations, they also bring new regulatory environments, established incumbents, and local competitors.
Critics argue that scaling profitably outside of Brazil may prove even more difficult, as Nu lacks the same brand recognition and first-mover advantage it enjoyed at home. Early user adoption has been encouraging, but skeptics worry that meaningful profitability from these regions could take longer than expected, with customer acquisition and compliance costs weighing on results in the meantime.
Another key argument is valuation. Even after a strong stock performance, Nu trades at a premium to established Latin American banks that already deliver higher ROEs and consistent dividends.
Bulls point to Nu’s growth trajectory and market share gains, but the bear thesis argue that investors are effectively paying for an idealized future scenario while underestimating the challenges of navigating volatile credit cycles, rising competition in fintech, and the complexity of scaling across diverse markets.
Summary
Nu has undeniably reshaped consumer banking in LatAm; however, the company’s financials do not yet justify its current valuation.
Sustainable profitability will require the company not only to improve returns and manage credit risk in Brazil, but also to demonstrate that it can expand profitably in Mexico and Colombia.
Here in Colombia nequi is much more used then nu bank
Great read. Have some pushback though:
I’m seeing an ROE of 27.88%, which is still strong. Not the best I’ve seen but very good still
Nu’s growth has been very strong, and their brand loyalty in Brazil is strong(as you mentioned). I see no reason that users in other LatAm countries won’t develop the same brand loyalty and love of the product as it’s much more user-friendly and convenient than the competitors.
The interest rates and volatility in the region are real concerns, although I believe the brand quality will endure the rough seasons.
I actually still think Nu is undervalued relative to its projected growth, but volatility and future growth questions bring uncertainty to my estimates
Great read! I’m a Nubank bull but I feel that understanding the bear case is critical to having a holistic picture of a company. Good on you for being contrarian