SoFi’s stock rally takes a breather despite improving credit trends

By Emily Bary

Analysts called out improvement in credit performance as a major positive coming out of SoFi’s third-quarter report, but the stock was falling hard

SoFi Technologies Inc. shares have been on a hot streak in recent months, but that’s cooling in the wake of the company’s latest earnings.

Tuesday morning’s report showed momentum in lending demand as well as progress on credit performance, but these factors may have been already anticipated by investors in light of the strong run heading into earnings.

Shares of SoFi (SOFI) are down 10% in morning action Tuesday despite initially rising in premarket trading. They’d booked a 53% gain in the three months prior to the latest report, and anticipation swelled in the lead-up to Tuesday’s earnings given strong recent results from peer LendingClub Corp. (LC)

Analysts flagged improvement in credit trends as a major positive coming out of Tuesday morning’s report. SoFi saw a 3.52% charge-off rate, compared with 3.84% in the prior quarter. The company also sold late-stage delinquencies but noted that even if it hadn’t, it would’ve seen an annualized net charge-off rate of about 5.0%, versus 5.4% in the prior quarter.

“Since rising [delinquencies] was a key controversy, this trend should offer an important sigh of relief,” Mizuho’s Dan Dolev wrote. Overall, he deemed SoFi’s quarterly performance “exceptional.”

Timothy Switzer of Keefe, Bruyette & Woods keyed in as well. “We view the improving credit performance as the primary takeaway for the quarter, as [net charge offs] peaked a quarter earlier than we had modeled, a positive for investors as we believe deteriorating credit trends would provide the most negative impact to SoFi’s capital/earnings/valuation,” he wrote.

“This quarter was the strongest quarter in our history,” Chief Executive Anthony Noto said in a release. “Our results reflect how SoFi is consistently achieving durable growth, how our innovation and brand building are attracting more members and clients to our platform than ever before, and how we are delivering strong and improving returns.”

SoFi’s total net revenue came in at $697 million, up 30% from a year before, while analysts tracked by FactSet had been modeling $636 billion. The neobanking company posted earnings per share of 5 cents for the third quarter, beating the 4-cent consensus view.

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The financial-technology company is seeing increasing contributions from its financial-services and technology-platform categories, which now account for 49% of SoFi’s adjusted net revenue. That compares with a 39% contribution seen in the year-earlier period.

“Momentum in financial services appears to be accelerating, and management reported that the tech segment has signed new partners,” Switzer wrote.

Noto called out 64% combined growth for the units during the third quarter, “a testament of our continued execution and deliberate shift towards capital-light, higher [return-on-equity], fee-based revenue streams.”

SoFi added 756,000 new members in the third quarter, bringing the company’s total up to almost 9.4 million.

Personal-loan originations rose 26% from a year before to $4.9 billion, a record for the company. Student-loan volumes were up 3% to $944 million, while home-loan volumes moved 38% higher to $490 million.

The company is now targeting $640 million to $645 million in adjusted earnings before interest, taxes, depreciation and amortization for the full year. That’s ahead of a prior outlook range, which called for $605 million to $615 million.

SoFi also models adjusted net revenue or $2.535 billion to $2.550 billion, whereas the company previously expected $2.430 billion to $2.470 billion.

“We view the guidance increase as positive and highlight the increase exceeds the 3Q beat,” Jefferies analyst John Hecht said in a note to clients.

-Emily Bary

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10-29-24 0940ET

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