SoFi's bank charter drives positive outlook, but layoffs hit tech unit

SoFi Technologies said the benefits of its bank charter outweighed home loan and student loan challenges and helped its fourth-quarter performance while it also announced layoffs in its technology unit.

The San Francisco-based neobank's earnings beat analyst expectations, as the company announced product development, new-member growth and balance sheet growth.

SoFi's deposits have grown to $7.3 billion from $1 billion over the last year, and the company has been able to use those deposits to fund loans, unlike other fintechs without bank charters. Its lending net interest income exceeded noninterest revenue for the first time in its history. 

"We've been in an all-out sprint over the last five years to build out our digital product suite to meet our members' needs for every major financial decision in their lives, and all the days in between," CEO Anthony Noto said Monday on the earnings call. "The benefits of our strategy result in a uniquely diversified business, [which] combined with a national bank license, not only position SoFi to be the winner that takes most…but also provide greater durability through the market cycle."

SoFi's net revenue was $443 million in the fourth quarter, up from $419 million in the third quarter, marking the seventh consecutive quarter of record adjusted net revenue. At midday Monday its stock had risen more than 12% to $6.68

While SoFi's balance sheet resiliency and new-member sign-ups were bright spots in the quarter, the technology unit, which has been a key investment area for the last three years, is still a work in progress. CFO Chris LaPointe announced layoffs from the technology unit, which a company spokesperson said in a post-earnings email represented less than 5% of SoFi's total employee base.

The neobank has been refining its technology provider strategy as it seeks to increase the quality of its partners and to unify two recently acquired companies: Technisys, a cloud-native bank infrastructure provider that it acquired and integrated early last year, and Galileo, a payment processor SoFi bought in 2020 that provides an API platform for fintechs. LaPointe said on the call that SoFi was focused on partnering with well-capitalized companies, and expanding products in categories like B2B and fraud protection. Technology unit revenues were up about 60% from the prior quarter.

Jefferies analyst John Hecht wrote in a note that SoFi was positioned for a profitable year, with rapid member growth. Robert Wildhack, an analyst at Autonomous Research, wrote in an analyst note that the company's fourth quarter results were "solid," and its 2023 outlook is ahead of current consensus. 

The fintech lender has also been "investing aggressively" in its financial services segment, which provides offerings like checking, savings and cash management, and expects the line of business to turn a profit in 2023 after nearly breaking even in the fourth quarter. SoFi plans to increase product development for cross-buying opportunities, as total members of 5.2 million are up 51% from the previous year. 

"When you think about the reach of [SoFi's] product lineup, it's pretty vast," Michael Perito, an analyst at Keefe, Bruyette & Woods, said in an interview earlier this month. "I think the name of the game is, 'We need to get our customers using as many of these products as they can.'"

LendingClub, another fintech lender with a bank charter, announced in reporting earnings last week that it was exiting two lines of business, and holding more loans on its balance sheet because of the economic environment. SoFi is also holding more loans on its balance sheet, though its product diversity also provides streams of revenue that LendingClub can't tap.