SoFi (NASDAQ: SOFI) shares were up 28% after the personal finance firm reported 22’22 better-than-expected second-quarter earnings and, despite continued pressure on the company’s student loan lending, SoFi unexpectedly raised its indications for the year 2022. SoFi also benefited from strong customer acquisition momentum in the second quarter of 22 ‘which led to 450,000 new members joining the SoFi ecosystem. With growth remaining so resilient after the pandemic and with indications for fiscal year 2022 seeing a good rise, investors are receiving a wake-up call that SoFi shares have much more potential!
Moment in Member Acquisition
SoFi benefited from strong customer acquisition rates in the second quarter. SoFi acquired 450,000 new members in the second quarter of 22, which was the most successful second quarter ever for the personal finance company… in the fourth quarter of 21 alone, SoFi signed more new members: 523,000. Over the past twelve months, SoFi has added an average of 440,000 new members to its ecosystem every quarter (147,000 monthly), and while growth is slowing in a post-pandemic world, the absolute number of new members is rapidly increasing. This growth is due to the fact that SoFi has reached a critical scale and is growing from a much larger account base than it was just two years ago. SoFi’s membership growth rate decelerated only slightly in Q2 22, dropping 1 percentage point to 69% quarter-over-quarter, demonstrating that SoFi remains an attractive place for people to do their banking .
SoFi’s strong customer acquisition in Q2 22 brought total members to a record 4.3 million and the company is on track to surpass my estimate of 4.7-4.8 million. members by the end of the year. Due to SoFi’s strong customer registration momentum, I’m increasing my estimate for the company’s membership from 4.7-4.8 million to 5.0-5.2 million by the end of the year.
SoFi’s expansion was once again driven by aggressive growth in the financial services / FS product category, which has been a key driver of SoFi’s member signups. Financial services products grew 111% yoy to a record 4.7 million … and FS products grew 5.5 times faster than traditional SoFi lending products. While financial services products are key to attracting new members to the SoFi ecosystem, traditional lending products continue to do well for the company: SoFi’s second quarter 22 was the fourth consecutive quarter of accelerating product growth. in the lending sector.
The extension of the federal moratorium on student loan payments in April weighed on SoFi’s valuation in recent months as the company used to make large amounts of student loans. With the extension of the Moratorium, however, student loan disbursements fell rapidly for SoFi. In the second quarter of 22, SoFi student loan disbursements fell 54% year-over-year to $ 398.7 million and the funding ratio dropped to just 12%. In fiscal 2021, SoFi originated more than $ 4.0 billion in student loans and had an origination stake of over a third.
What helped SoFi offset the decline in student loan disbursements, however, was personal loans, which saw funding growth of 91% year-over-year to $ 2.47 billion. Q2 22 was the second consecutive quarter that SoFi originated more than $ 2.0 billion in personal loans, which helped the company keep its total origination volume above $ 3.0 billion.
Increased guidelines for FY 2022
SoFi’s financial platform generated revenue of $ 356 million in the second quarter of 22, which compares favorably with a forecast of $ 330-340 million. What’s even more impressive than beating its own lead, and which was unexpected as far as earnings go, is that SoFi has raised its lead for fiscal year 2022.
Previously, SoFi raised its second quarter net revenue forecast to $ 1,505-1,510 million, compared to $ 1,470 million. SoFi lowered its recommendations in April in the wake of the extension of the federal moratorium on student loan payments, which is weighing on student loan repayments and SoFi’s earnings. The moratorium expires at the end of August and will probably be extended again by the current administration.
The new guide for fiscal 2022 expects net revenues of $ 1,508-1,513 million, showing an increase of $ 3 million, and an adjusted EBITDA of $ 104-109 million, showing an increase of 4 million over the previous guide.
Because the market is right this time
SoFi is expected to increase revenues to $ 1.51 billion in fiscal 2022 and $ 2.09 billion in fiscal 2023, implying top-line growth rates of 49% and 38%. Revenue estimates may rise in the future as SoFi just upped its lead. Additionally, the end of the federal moratorium on student loan payments and the resumption of student loan repayments could lead to a reassessment of SoFi’s earnings prospects … which would likely also be a catalyst for SoFi’s actions. The 28% rise in prices after earnings recognizes that the market is waking up with SoFi’s value offering it presents in the personal finance industry.
While it is not cheap with a PS ratio of 3.6X, investors are paying for SoFi’s future growth potential. And with nearly 5 million users expected by the end of the year, SoFi could have a big impact in the personal finance industry in the future.
Risks with SoFi and other fintechs
The speed at which fintechs, including SoFi, are registering new members is slowing after the pandemic. However, in absolute numbers, SoFi is signing up more members to its platform than at the height of the pandemic, especially since SoFi now operates from a much higher account base.
Going forward, slowing member growth and the top line are still risks for SoFi and the stock. Additionally, the federal moratorium on student loan payments is likely to be extended again this month, indicating a continuing delay in student loan repayments. While I believe this extension already comes at a price in the SoFi valuation, the announcement of an extension could create excess negative sentiment for SoFi in the short term.
Shares of SoFi were up 28% after earnings and it was a wake-up call for investors not to underestimate SoFi’s growth prospects in a post-pandemic world. The personal finance brand continues to benefit from exceptionally high customer acquisition rates, even without the pandemic spurring signups, indicating a strong value offering for members. SoFi members continue to be drawn to SoFi’s increasingly rich product offering which includes all types of differentiated loans and FS products. Since the company has also increased its lead, SoFi shares have much more potential to revalue higher!