Fintech provider SoFi Technologies Inc. (NASDAQ: SOFI) knocked the ball out of the stadium with its Q3 2023 earnings report. SoFi is an online personal finance company servicing college students, millennials and Gen-X-ers completely online through its digital platform. The company creates generational customers by providing student loan financing and expanding its suite of financial services as customers progress throughout their careers.
Digital banking, insurance and investing services
The company is a licensed FDIC insurance digital bank providing deposit and checking accounts, business services, credit cards, personal loans and mortgages. SoFi offers insurance services, including life, home and auto, through its partnerships with various providers, including Lemonade, Inc. (NASDAQ: LMND).
It also offers investing and wealth management services, which include commission-free stock, ETF, IPOs and cryptocurrency trading. They offer IRAs and retirement planning, robo advisors and even human-certified financial planners (CFPs). It’s a one-stop shop for personal finances, all conveniently accessible through its mobile app.
From a $2.50 target to Q4 GAAP profitability
It’s hard to imagine that the company received double downgrades in May by Wedbush dropping its rating to Underperform and lowering its price target to $2.50. Meanwhile, the company has been on a solid trajectory towards reaching GAAP profitability by Q4 2023, and its latest earnings leave little doubt it will.
The company is ushering in a new generation of customers acclimated to banking in the digital world without branches and office locations. The average annual income of SoFi customers is $112,000, with a median FICO credit score of 743 for its direct deposit portfolio.
Batter Up
On Oct. 30, 2023, SoFi reported its Q3 2023 adjusted earnings-per-share (EPS) loss of 3 cents, beating consensus analyst estimates for a loss of 8 cents by 3 cents. Adjusted EBITDA rose 121% YoY to $98 million. GAAP EPS loss was 29 cents, excluding the impact of 3 cents for a Goodwill Impairment charge. Total revenues rose 34.6% YoY to $564.2 million versus $511.3 million consensus analyst estimates.
Net revenues rose 27% YoY to $531 million. A higher volume of student loan originations came in the quarter than expected. SoFi grew quarterly membership by 47%, adding 717,000 to 6.9 million. The company had 1,047,000 new product ads, growing 45% YoY to more than 10.4 million. Total deposits grew 23% or $2.9 billion to $15.7 billion.
Raising the Bar Again
SoFi raised its revenue guidance for full-year 2023 to $2.045 billion to $2.065 billion, up from $1.974 billion to $2.034 billion versus $2.03 billion consensus analyst estimates. SoFi expects GAAP profits in Q4 2023.
CEO Insights
SoFi CEO Anthony Noto presented some impressive metrics for the quarter. Over 77% of adjusted net revenue in the Lending segment was net interest income. It grew 90% YoY to $265 million. Net interest income is 2X greater than its expenses. Segment contribution margin rose 300 bps sequentially to 60%. Student loan originations saw their highest originations since Q1 2022 ahead of repayments. Home loan originations rose 64% YoY despite high interest rates for purchase and refi.
Over 65% of their loans were funded by deposits. Lending capacity is robust, with over $27 billion in capacity, which includes $15.7 billion in deposits, $3 billion of equity capital and $8.4 billion of warehouse capacity. The company has expanded its buy now pay later offering, enabling lenders to provide it as working capital loans to small businesses.
Cross-Buying Product Synergies Accelerating
A key part of the SoFi strategy is to promote synergistic cross-buying of products on its platform. This was demonstrated beautifully in the quarter from customers in its SoFi Money banking and investing services to its lending and financial services. Over 50% of newly funded SoFi Money accounts set up direct deposit by day 30. This resulted in debit spending exceeding $1 billion in quarterly debit transaction volume, up 3.2X YoY. This represents over $5 billion in annualized debit transaction volume. The average FICO score for new direct deposit accounts opening in Q3 2023 was 743.
$2 Million FDIC insurance
The company has nearly 98% of its deposits insured at the end of the quarter. The company launched its expanded FDIC insurance of $2 million in Q1 2023. This is done by sweeping deposits into eight different banks overnight and collecting $250,000 of FDIC insurance from each bank, thereby adding up to $2 million total insured.
The “high quality” of deposits has helped lower funding costs for its loans, increasing its flexibility to capture additional net interest margin to optimize returns. SoFi Bank. N.A. generated $84.8 million of GAAP net income at a 19% margin. SoFi will place $375 million in personal loan securitization exclusively with BlackRock Inc. (NYSE: BLK). SoFi has sold over $14.5 billion in loans and securitized over $13.7 billion.
Analyst Actions
On Oct. 31, 2023, Morgan Stanley made a bold call to upgrade SoFi to Equalweight from Underweight. Analyst Adelson was more positive upon seeing net interest income rise faster than expected on loan growth, higher student loan originations, and the ability to originate at higher loan yields thanks to strong deposit flows. The potential for higher Q4 loan sales lowers the risk of a potential capital raise in the near term.
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Daily Descending Triangle Breakout
The daily candlestick chart on SOFI was in a descending triangle pattern comprised of a descending trendline that commenced on Oct. 11, 2023, after peaking at $8.75. Consecutive lower highs formed the descending trendline as it fell under the daily 200-period moving average (MA) to bottom at $6.68.
The daily market structure low (MSL) trigger formed at $7.57. The daily relative strength index (RSI) bounced off the 30-band, rising to the 60-band as SOFI broke out through the descending triangle and the 200-period MA at $7.33, powered by strong Q3 2023 earnings. Pullback supports are at $7.33 daily 200-period MA, $6.97, $6.68 flat-bottom trendline, $6.10 and $5.59.