Sofi’s Stock is Poised to Keep Roaring After Earnings as Loan Volumes Surge

Shares of SoFi Technologies Inc. have been enjoying a strong rally in recent months, but that momentum took a sharp downturn after the release of the company’s latest earnings report. The report, issued Tuesday morning, revealed positive trends in lending demand and improved credit performance, but these favorable factors may have already been priced into the stock, given its strong run leading up to the earnings.

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On Tuesday, SoFi shares dropped 10% in morning trading despite initially rising in premarket activity. In the three months before the report, SoFi’s stock had surged by 53%, with investors growing increasingly optimistic in the lead-up to the earnings, particularly after encouraging results from peer LendingClub Corp.

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One of the standout positives from SoFi’s earnings report was an improvement in its credit trends. The company reported a 3.52% charge-off rate for the quarter, a decline from 3.84% in the prior quarter. Additionally, SoFi sold some of its late-stage delinquent loans, but even without that sale, the company said its annualized net charge-off rate would have been around 5.0%, compared to 5.4% in the previous quarter. This decline in charge-offs indicates improving credit conditions, a major concern for investors.

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Mizuho analyst Dan Dolev highlighted this improvement as a relief, noting that rising delinquencies had been a major source of uncertainty for the company. "This trend should offer an important sigh of relief," he wrote, and he went on to describe SoFi’s overall performance in the quarter as "exceptional."

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Timothy Switzer, an analyst from Keefe, Bruyette & Woods, echoed this sentiment. He pointed out that the company’s improving credit performance was the key takeaway from the earnings report. Switzer noted that net charge-offs had peaked earlier than expected, which was a positive development for investors. He also emphasized that deteriorating credit trends would have had a highly negative impact on SoFi’s capital, earnings, and valuation.

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SoFi’s CEO, Anthony Noto, expressed confidence in the company’s performance. "This quarter was the strongest quarter in our history," Noto said in the earnings release. He attributed the success to the company’s ability to achieve consistent, durable growth and highlighted how SoFi’s innovation and brand-building efforts were drawing in more members and clients than ever before. Noto also pointed out the company's ability to deliver strong and improving returns.

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The company’s total net revenue for the quarter came in at $697 million, marking a 30% increase from the same period a year earlier. Analysts surveyed by FactSet had expected revenue of $636 million, meaning SoFi exceeded expectations. Additionally, SoFi reported earnings per share of 5 cents for the third quarter, beating analysts’ consensus estimate of 4 cents.

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SoFi, a financial-technology company, is seeing increasing contributions from its financial services and technology platform segments. These areas now make up 49% of the company’s adjusted net revenue, up from 39% in the year-ago period. Analyst Timothy Switzer noted that momentum in SoFi’s financial services division seems to be accelerating. He also mentioned that the company’s tech segment has signed new partners, indicating further growth potential in the future.

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Noto underscored the importance of these two divisions, noting a combined 64% growth for the units during the quarter. He described this growth as a testament to SoFi’s ongoing execution and its deliberate shift towards more capital-light, fee-based revenue streams, which tend to offer higher returns on equity.

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During the third quarter, SoFi added 756,000 new members, bringing the company’s total membership count to nearly 9.4 million. On the lending front, personal loan originations increased by 26% year-over-year to $4.9 billion, setting a new record for the company. Student loan volumes grew by 3% to $944 million, while home loan originations surged by 38% to $490 million.

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Looking ahead, SoFi raised its full-year outlook for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The company now expects to generate between $640 million and $645 million in adjusted EBITDA, up from its prior forecast of $605 million to $615 million. The company also lifted its guidance for adjusted net revenue, projecting a range of $2.535 billion to $2.550 billion, compared to the earlier estimate of $2.430 billion to $2.470 billion.

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Jefferies analyst John Hecht viewed the increase in guidance as a positive signal, noting that it exceeded the third-quarter earnings beat. This upward revision in SoFi’s outlook reflects the company’s confidence in its ability to sustain growth and improve profitability.

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In summary, while SoFi delivered strong earnings results, the company’s stock experienced a sell-off as investors may have already priced in much of the positive news. The quarter showed notable improvements in credit performance and solid growth across its lending and technology platforms, but the company’s rapid stock rise in the months leading up to the report may have led to tempered expectations post-earnings. Despite the stock’s short-term pullback, SoFi’s leadership remains optimistic about the company’s future trajectory.

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