SoFi reported strong numbers for its student-loan business.
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SoFi Technologies
stock climbed Monday after the fintech posted strong numbers for its student-loan segment and lifted its forecasts.
In midmorning trading, shares of SoFi (ticker: SOFI) were up 3.5%, to $7.11. Shortly after the opening bell, the stock had been up 12.4% to $7.72, on pace for their largest percent increase since July 31, when the company posted second-quarter earnings, according to Dow Jones Market Data. On that day, the stock jumped 20%. This year’s gain stands at 68%.
SoFi (ticker: SOFI) posted third-quarter student loan originations of $919.3 million—far above the $651.5 million forecast—“as borrowers prepared to resume student loan payments in October,” the company said in its earnings news release.
Personal and home loans—at $3.89 billion and $355.7 million, respectively—beat expectations as well. Forecasts were $3.61 billion for personal loans and $245.3 million for home loans.
SoFi’s student-loan segment took a beating during the Covid-10 pandemic, when the government suspended payments from borrowers. Now, with the pause lifted this month after more than three years, investors were ready for those numbers to tick back up.
SoFi posted an adjusted loss of 3 cents a share; Wall Street had expected a loss of 8 cents, according to FactSet. Adjusted net revenue was $530.72 million, above the expected $511 million.
“First, 67% of our absolute growth in adjusted net revenue dollars was driven by the nonlending businesses, specifically the technology platform and financial services segments; and second, our financial services segment achieved positive contribution profit for the first time, making all three reported segments profitable while bolstering our consolidated profitability,” Chief Executive Officer Anthony Noto said on the earnings call.
Deposits increased by $2.9 billion to a total of $15.7 billion, and the number of members, or customers, grew by more than 717,000 to over 6.9 million.
The company lifted its financial forecasts for the full year. It now expects adjusted net revenue of $2.045 billion to $2.065 billion, up from $1.974 billion to $2.034 billion. Management predicted full-year adjusted Ebitda of $386 million to $396 million, up from $333 million to $343 million.
“SOFI continues to navigate well in a somewhat challenging environment given the macro & rate environment,” wrote Jefferies analysts led by John Hecht, who rate shares at Buy, in a Monday report.
The company began as a lender focused on refinancing student debt, but now operates through three segments: lending, which includes student, personal, and home loans; financial services; and a technology platform.
Earlier this year, Noto told Barron’s that it was just a matter of time before his company becomes one of the country’s top 10 financial firms. The numbers say there is a long way to go.
With a market capitalization of $6.6 billion, SoFi is dwarfed by companies like
JPMorgan Chase
(JPM),
Bank of America
(BAC), and
Wells Fargo
(WFC). They boast market caps of about $409 billion, $208 billion, and $145 billion, respectively.
That makes vaulting into the top 10 a lofty goal. It may be complicated by the company’s focus on a core target customer: people whose average income is $100,000 or higher.
“Our products are going to appeal to more than our core target; they already have,” the CEO told Barron’s earlier this year. “But like most great brands that cross over, if we build a great product for one core group, it will increasingly meet the needs of other core groups.”
Focusing on relatively wealthy people may reduce credit losses because such clients have more in their wallets, but it could also limit the market SoFi can address. That might eventually make it harder to snap up new customers, a critical driver of growth and profitability for banks.
Analysts have paid attention to SoFi. Earlier this year, Truist Securities analyst Andrew Jeffrey hailed it as “the future of U.S. banking: digital, nimble and always on.” Competitors include
LendingClub
(LC),
Rocket
(RKT),
UpStart
(UPST), and
Marqeta
(MQ), according to
Piper Sandler
‘s Barker.
Mizuho analyst Dan Dolev, who rates shares at Buy, was upbeat last week. “Longer term investors are worried that an online bank isn’t a good business model, which we vehemently disagree with,” he told Barron’s in an email. “They are seeing very strong deposit inflows, which is the key.”
Not everyone is as optimistic. Of the analysts covering the stock, 32% rate it at Buy, compared with 56% in April, according to FactSet.
SoFi was founded in 2011 and taken public on June 1, 2021, through the special purpose acquisition company Social Capital. Shares opened at $21.97 and closed at $22.65 that day, according to Dow Jones Market Data. Shares now are at $7 and change.
SoFi has already offered investors a show. The next act starts now.
Write to Emily Dattilo at [email protected]
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