Shares of the prominent American fintech, SoFi Technologies, surged by 22% after the company raised its revenue guidance. In its latest earnings report, the online bank cited that the most significant stock price hike in almost a year was aided by an increase in overall deposits and lower-cost funding on loans.
SoFi Share Prices Surge After The Online Bank Reports Positive Q2 Performance
Total deposits at the end of the second quarter reached $12.7 billion – growing by 26% or $2.7 billion, up from $7.34 billion at the end of last year. Meanwhile, the addition of new customers also helped improve SoFi’s credibility at a time when banks are suffering a run on their deposits.
The online finance company added 584,000 new customers in the last quarter, bringing the total to 6.2 million. The report also showed that SoFi products reached a new high of 847,000. With 9.4 million products currently under its belt, the company has seen a year-on-year rise of 43%.
The improved operational performance resulted in the bank’s net revenue rising by 37% to $498 million. There was also a 51% increase in loan originations that amounted to $13 billion, which more than doubled SoFi’s net interest income (NII) to $291.1 million in the three months leading to June.
These numbers were beyond the expectations of Wall Street analysts whose average estimate was $476.2 million in revenue and $261.3 million in NII.
Analysts at investment bank Jefferies noted that SoFi’s positive second-quarter earning results were due to continued growth in customer and deposit numbers. In a note to investors, Jefferies stated that the fintech’s growth was derived from net interest income (NII) and not fair value marks, which represent recurring revenues. The banking giant has assigned a “Buy” signal for SoFi stocks, with a target share price of $11.50.
The Fintech Expects Student-Loan Payments To Maximize Its Profits By Q4 2023
SoFi posted a net loss of $47.5 million in Q2, stating that demand for new student and house loans had declined. Student-loan refinancing, the company’s biggest source of profit before the pandemic, was “relatively depressed” due to the U.S. government’s payment moratorium for the loans.
The fintech expects student-loan payments, which amount to 75% of the bank’s loans, to resume in the third and fourth quarters of this year. The report suggests it will be a big boost for SoFi’s profits.
As a result, the company now expects to report a profit at the end of the year with an adjusted net revenue of between $1.97 billion and $2.03 billion. This is above SoFi’s previous forecast of $1.96 billion to $2.02 billion.
According to its management, the fintech expects full-year adjusted ‘earnings before interest tax and depreciation’ (EBITD) to hit between $260 million and $280 million. This figure is above financial analysts’ estimates that said $246 million.
Low-Cost Deposit Funding Saved SoFi During March’s Banking Turmoil
This year, we witnessed some of the biggest banking collapses in U.S. history, namely – Signature Bank, Silicon Valley Bank, and First Republic Bank. the banks’ customers panicked and caused a deposit run after it was revealed that the lenders were not able to meet their debt obligations to creditors due to the Federal Reserve sharply hiking interest rates on the dollar.
March’s catastrophic event threatened to derail the country’s banking system and also jeopardize global financial stability. But the U.S. government stepped in at the right moment to help save the banks and make their depositors whole.
Despite the scenario, SoFi continued to avoid the problems plaguing the banking sector and increased its deposit numbers. The defining factor that made the bank stand out from its competition was the bank charter it used to navigate through the chaotic environment. SoFi was also offering a $2 million Federal Deposit Insurance Corporation (FDIC) insurance on deposits.
Speaking in an interview with Bloomberg TV, SoFi CEO Anthony Noto said the growth in “high-quality deposits” has benefited the company in lowering the cost of funding for its loans.
Noto added that deposit funding has increased the fintech’s flexibility to get hold of additional net interest income and optimize revenue. He says this gives SoFi a critical advantage during times of macro uncertainty. SoFi is targeting a 30% return on its equity.
According to stock investing and stock market research firm Motley Fool, the rising interest rate environment in the United States could be a blessing in disguise for SoFi, as the power dynamics will ignite a competitive advantage for its stock that investors are looking for.
An analyst at Motley Fool explained a “blue-sky scenario” where SoFi exceeds the $2 billion upper end of its 2023 revenue guidance. The researcher said that the “widening spread” between the interest charged by the bank on borrowing and the rate it pays for funds can be significant in boosting its underlying finances.
The analyst says this can be achieved if SoFi would be willing to make use of significant amounts of its low-cost customer deposits.
On Wednesday’s session, SoFi stock gained 6%, a nearly 60% rise for the year. The stock, which opened at $10.12, reached a low of $9.72 before closing at $10.28.
At the time of writing, SoFi is trading at $10.08 – down 2.6% in the last 24 hours.