SoFi Stock Rises on Strong Student Loan Originations and Guidance Boost

SoFi’s student-loan segment took a beating while people who owed money on student loans were allowed to stop making payments as Covid-19 rattled the economy. Now, with the pause lifted this month after more than three years, backers of the stock were ready to see those numbers tick back up.

SoFi posted a third-quarter adjusted loss of 3 cents a share, narrower than the loss of 8 cents expected by Wall Street, 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 Monday.

Deposits jumped to $15.7 billion by the end of the quarter, and the number of members, or customers, grew. 

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 its previous forecast of $1.974 to $2.034 billion. Management predicted full-year adjusted Ebitda of $386 million to $396 million, up from a prior call for $333 million to $343 million.

“We view the updated guide as an incremental positive and SOFI remains on track for GAAP profitability within the year,” wrote Jefferies analysts led by John Hecht, who rate shares at Buy, in a Monday report. “SOFI continues to navigate well in a somewhat challenging environment given the macro & rate environment.”

Shares of SoFi were up 10% to $7.57 in premarket trading. 

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.

That being said, SoFi has certainly gotten analysts’ attention. Truist Securities analyst Andrew Jeffrey hailed it as “the future of U.S. banking: digital, nimble and always on,” earlier this year. 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 on SoFi. “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 last week. “They are seeing very strong deposit inflows, which is the key.”

Overall, however, analysts are less upbeat on SoFi this year. Only 32% rate it at Buy, compared with 56% in April, according to FactSet.

The stock has had a stellar year, with a gain of 49%. Though it is trading far below its level when it began to be publicly traded, it is faring much better than other fintechs in the face of rising interest rates.
PayPal Holdings
(PYPL) has fallen 29% this year, while
Block
(SQ) has declined 36%.

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. Since then, shares have tumbled, ending Friday at $6.87.

SoFi has already offered investors a show. The next act starts now.

Write to Emily Dattilo at [email protected]