SoFi Earnings: Revenue Growth Slows on Lower Loan Growth and Higher Credit Costs

Key Morningstar Metrics for SoFi Technologies

• Fair Value Estimate: $13.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of SoFi Technologies’ Earnings

SoFi Technologies SOFI reported first-quarter earnings roughly in line with our expectations, though the firm did see slower growth amid its more conservative approach to the lending segment. Adjusted net revenue increased 26.2% from last year but declined 2.2% from last quarter to $580.6 million. Meanwhile, earnings per share increased to $0.08 from a loss of $0.05 last year, though this includes a one-time $59 million gain on extinguishment of debt, without which the 2024 earnings per share would have been only $0.02. As we incorporate these results, we do not plan to materially alter our fair value estimate of $13 per share. We see the stock as significantly undervalued.

Net interest income from SoFi’s lending and financial services segment was still the largest driver of growth, increasing 70.6% from last year, though only 3.4% sequentially, to $402.7 million. The rapid year-over-year increase was from strong loan growth and net interest margin increasing to 5.91% from 5.48% last year. This was primarily the result of SoFi’s improving funding structure, with deposits now making up 82.4% of total funding, up from 61.2% last year.

On the other hand, SoFi’s average loan balances increased 56.8% from last year to $23.5 billion, though the sequential growth rate was much lower at 5.4%. In the face of rising credit costs and interest rate uncertainty, SoFi has decided to take a more conservative approach to its balance sheet in 2024, leading to flat origination volume from last quarter and around $1.9 billion in loan sales. We see the merit in this approach as SoFi’s balance sheet could not maintain the kind of loan growth seen in 2023 and 2022 for much longer, but this will lead to lower growth in 2024. The firm is guiding for a 5%-8% drop in revenue from its lending business, which seems likely, given the results of the first quarter.