SoFi Earnings: Deposit and Loan Growth Drive Net Interest Income as Losses Narrow

Key Morningstar Metrics for SoFi Technologies

• Fair Value Estimate: $14.50
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of SoFi Technologies’ Earnings

SoFi Technologies SOFI reported solid third-quarter earnings as strong deposit and loan growth drove results higher. Net revenue increased 27% from last year and 7.9% from last quarter to $531 million. Excluding a $247 million goodwill impairment expense, net losses narrowed to $19.5 million from $74.2 million last year. SoFi also raised its 2023 net revenue guidance from $1.974 billion-$2.034 billion to $2.045 billion-$2.065 billion. Given the updated guidance, we think it is now likely that SoFi will achieve its goal of GAAP profitability by the end of 2023. While these were good results, we do not expect to materially alter our $14.50 fair value estimate.

SoFi’s lending arm (its largest source of revenue) had another solid quarter, with revenue increasing 15.6% from last year to $349 million. The increase was entirely due to higher net interest income, which increased 90% year over year to $265 million, while noninterest income fell 48%. This growth was the result of both loan growth and net interest margin expansion, with SoFi’s expanding loan book playing the larger role.

Deposit growth continues to be a strength, with total deposits rising 115% from last year and 23% from last quarter to $15.6 billion. SoFi’s impressive deposit growth has enabled it to rapidly expand its balance sheet, with its period-end loans increasing to $21.35 billion from $13.85 billion last year. That said, SoFi is running out of room to continue its balance sheet expansion as its capital ratios come closer to regulatory minimums. Going forward, the firm will need to lean harder on loan sales and securitization to monetize its loan origination growth as it runs out of space on its balance sheet. Case in point: With its earnings release, SoFi announced it was partnering with BlackRock BLK on a $375 million personal loan securitization, to be placed directly in BlackRock’s funds.