The shares of San Fransisco-based fintech SoFi Technologies surged by more than 22% on Monday following the release of the company’s earnings report for the second quarter of 2023, which was beyond the expectations of Wall Street analysts.
SoFi Bank’s Net Revenue Rise Beyond Wall Street’s Expectations
The online banking firm’s net revenue rose 37% to $498 million, which was largely driven by a 51% increase in personal loan originations, helping more than double its net interest income (NII) to $291.1 million between April and June. Meanwhile, the demand for student and house loans saw a decline.
According to data compiled by Refinitiv data, market analysts estimated an average of $476.2 million in revenue and $261.3 million in NII for SoFi.
New Customers And Deposit Growth Key Reasons For SoFi Stocks To Rise
The earnings report also showed a growth in new customers. With the addition of 584,000 new members, the figure currently stands at 6.2 million. This is a 44% increase from the previous quarter. SoFi’s products also saw a significant rise and with 847,000 new additions, the total is now 9.4 million – a year-on-year increase of 43%.
Another key statistic for the online finance company is its total deposit growth, which rose by 26% in Q2 2023 to reach $2.7 billion. SoFi now has deposits worth a total of $12.7 billion under management.
This resulted in the fintech raising its full-year guidance – an informal report a public company issues to shareholders detailing the earnings it expects to achieve in the next fiscal quarter or financial year.
SoFi Expects To Return A Profit For The First Time By The End Of This Year
Despite posting a net loss of $47.5 million, the company expects to report a profit for the first time in the fourth quarter of this year. SoFi expects adjusted net revenue of 1.97 billion to $2.03 billion in 2023, up from its previous forecast of between $1.96 billion and $2.02 billion.
On Monday, shares of the Nasdaq-listed bank went up to $11.70, the highest level it has reached since March 2022, before closing at $11.45. This was a nearly 20% gain from the previous day’s session.
According to JP Morgan’s data, the stock has seen a sharp rise of nearly 150% so far this year, making SoFi Technologies the second most traded stock among retail investors.
John Hecht, an analyst for investment banking group Jefferies, said in an investor note that SoFi’s second-quarter earnings results “beat expectations” and were largely positive due to continued growth in customer and deposit figures. He added that the results were mostly oriented from net interest income (NII) rather than fair value marks, representing recurring revenues for the bank.
Refinitv data reports that Jefferies has assigned a “Buy” rating for SoFi stock, with a target price of $11.50. While other Wall Street analysts gave the stock a median target of $8.
SoFi Offering FDIC Insurance Of Upto $2 Million On Deposits
During a time when a run on deposits has led to the collapse of some of the largest lenders in the United States – Silicon Valley Bank, First Republic Bank, and Signature Bank – SoFi, which saw a significant rise in deposits in Q1 2023, used its bank charter to tackle many of the cost challenges faced by other banking institutions as a result of the Federal Reserve’s hiking of interest rates on the dollar. The financial technology company is targeting a 30% return on its equity.
The improved deposit rates can be attributed to the bank now offering a $2 million insurance by the Federal Deposit Insurance Corporation (FDIC) for most deposits.
In an interview with Bloomberg TV, Anthony Noto, the CEO of SoFi, said the growth in “high-quality deposits” allowed the online bank to benefit from a lower cost of funding for its loans.
He added that the deposit funding also increased the firm’s flexibility “to capture additional net interest margins and optimize results”, which according to the chief executive is a critical advantage “in light of notable macro uncertainty.”
End Of Student-Loan Moratorium Could Boost The Bank’s Profit
Student-loan refinancing, which is the hallmark business of the firm and one that returned the most profits through the end of 2019, remained “relatively depressed”. This is due to the U.S. government implementing a payment moratorium on student loans during Covid-19.
In March, SoFi sued the government to block the student loan payment pause, only for the Biden administration to rescind it.
SoFi expects student-loan payments to resume in the coming months, mostly likely in the third and fourth quarters, which could be a big boost to the company’s profits.
At the time of writing, SoFi Technologies shares are trading at $10.35 – down 9.61% in the last 24 hours.