SoFi Earnings: Strong Loan Platform Revenue Drives Acceleration in Growth

Key Morningstar Metrics for SoFi Technologies

• Fair Value Estimate: $13.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of SoFi Technologies’ Earnings

SoFi Technologies SOFI reported solid third-quarter results thanks to a sharp increase in loan platform revenue, though the reliability of this is in question. Net revenue increased 30% from last year and 16% from last quarter to $697 million. Earnings per share increased to $0.05 from a loss of $0.29 last year. As we incorporate these results, we do not plan to materially alter our fair value estimate of $13 per share. We see the shares as undervalued.

During the quarter, SoFi saw strong results from its financial services segment, with revenue increasing 102% from last year to $238.8 million. One of the largest drivers of this was a sharp increase in revenue from the loan platform business, which jumped to $56 million in fee-based revenue, more than 500% of last year’s result. We expected a strong result here, thanks to SoFi’s recent $2 billion agreement with Fortress Investment Group, but this exceeded our expectations substantially. That said, it is unclear how reliable this growth will be in the long term, given the short-term boost from the Fortress deal. The company also saw a 211% year-over-year increase in interchange revenue thanks to continued momentum in its deposit accounts and credit cards.

Despite the impressive performance of the financial services segment, net interest income was still the largest driver of growth, increasing 25% from last year and 4.5% from last quarter to $431 million. The increase in net interest income was entirely due to loan growth, as net interest margin decreased to 5.57% from 5.99% last year. SoFi’s net interest margin faces dual headwinds from falling interest rates and a shift in its asset mix toward lower-yielding secured loans and investment securities. SoFi’s strong deposit growth has historically provided a tailwind to margins, as the company replaced high-cost brokered deposits and external funding with cheaper retail deposits, but this has mostly run its course.