SoFi gets a lift from the return of student loan payments

SoFi saw a return to its business roots as student loan originations reached their highest level since the start of 2022, the company announced in its third-quarter earnings call.

As its lending business gained back lost ground from the student loan payment moratorium, CEO Anthony Noto said the company expects its other two lines of business, its nonlending financial services and technology segments, to drive growth. The San Francisco fintech raised its target revenue for the year to $2.045 billion to $2.065 billion from its previous guidance of $1.974 billion to $2.034 billion.

In the last year, SoFi has been investing in its capabilities outside of lending, as that business stalled. Noto said the neobank is still in "investment mode," but has built financial service products for investing, credit cards and checking and savings, among others. The company has also been refining its technology segment, through which it helps other financial institutions build payments, checking, savings and credit and debit offerings. 

"Think about personal loans and student loans being additive to growth, and the tech platform and the financial services segments being the driver of growth," Noto said on the call. "Those are low capital businesses, in fact nearly capital free. They have also hit the point of profitability, which allows us to step on the gas to drive even more scale on them."

The nonlending financial services segment, including investing, credit cards and checking and savings, was profitable for the first time, and, along with the technology segment, accounted for 67% of the company's absolute growth in adjusted net revenue dollars.

The shift in the business is a long time coming as the student loan moratorium hampered what was once the key to growth for the neobank. In early March, SoFi alleged in a lawsuit that the moratorium had cost the company a minimum of $150 million in profits since March 2020.

Vincent Caintic, an analyst at Stephens, said he thought SoFi's performance this quarter was strong. He added that the neobank's product diversity is a differentiator among other fintechs. 

"We've been focused on the lending business, but eventually those other businesses that we're not really focused on are supposed to be the majority driver and that's great for SoFi's business," Caintic said. "It stands out versus any of the other banks I cover. [SoFi is] able to get more customers, and once they get the customer, that customer takes on a lot more products … with SoFi and that's pretty unique."

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SoFi's third-quarter results beat Wall Street estimates, especially as student loan originations were stronger than expected, Caintic said. The company had $531 million in adjusted net revenue, up 27% from the previous year, and net interest income of $345 million, up 119% year over year and 18% from the prior quarter.

David Chiaverini, an analyst at Wedbush, wrote in a note following the earnings call that while SoFi showed a strong third quarter, he gave the company an "underperform" rating due to caution about capital constraints and slowing revenue growth in 2024.

SoFI's stock saw a roller coaster on Monday, shooting up more than 10% this morning from yesterday's closing price of $6.87, before dropping back down to 2% below that price. SoFi's stock was up modestly, at $6.94, at market close.

The neobank also announced today an agreement to place a $375 million personal loan securitization with funds managed by BlackRock investment advisors, expected to settle next month. Noto said in a statement that the access to different sources of capital is "a critical component to growing our lending capabilities and better serving our members." SoFi also announced a $2 billion forward-flow agreement with a 12-month funding partner. 

Caintic said some of the stock price fluctuation could be due to lack of clarity about how much risk SoFi is taking on in the forward flow agreement, but added that he thinks the agreement is a good sign for the company going forward.

"I actually thought the quarter was very positive," Caintic said. "They beat third-quarter consensus, they're beating fourth-quarter consensus as well with their guidance. ... That's great news, that they're receiving these funding partners. So actually, I thought everything was good about the quarter."