SoFi Technologies Inc. shares were rocketing in morning trading Monday after the digital financial services company exceeded expectations with its latest earnings and said that it expects to be profitable on a GAAP basis by the fourth quarter of this year.
The company saw its fourth-quarter losses narrow to $40 million, or 5 cents a share, from $111 million, or 15 cents a share, in the year-prior quarter. Analysts were expecting a 9-cent loss per share for the period.
On an adjusted basis, SoFi
reported adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) of $70 million, ahead of the roughly $5 million in adjusted Ebitda it generated in the year-earlier quarter. The FactSet consensus was for $43 million.
Shares were up nearly 15% in morning trading and on track to log their third-straight post-earnings gain.
See also: SoFi stock gains after company gives upbeat 2023 earnings forecast
The company saw fourth-quarter non-interest income rise to $144.6 million from $136.5 million, as it benefitted from higher personal-loan originations but also recorded lower student-loan and home-loan originations.
Personal-loan originations were up 50% from a year earlier, while student-loan originations were off 72% and home-loan originations were down 84% “as a result of macroeconomic headwinds and a continued transition of home-loan fulfillment partners,” according to SoFi’s release.
SoFi achieved $2.5 billion in personal-loan originations in the quarter. “This strong performance was aided by years of investment in technology to automate and accelerate the application-to-approval process for qualified borrowers and frequent testing of risk controls and underwriting models to maintain our high standard of credit quality,” the company said in its release.
“While these origination levels themselves are impressive, the strength of our balance sheet and diversification of our funding sources provide new options to fund lending growth while driving efficiency with cost savings,” Chief Executive Anthony Noto said on the earnings call, according to a transcript provided by AlphaSense/Sentieo. “These advantages are a direct result of SoFi Bank” as SoFi can use deposits as a source of funding.
The company saw a 46% increase in total deposits for SoFi Bank during the latest quarter, and SoFi noted that the bank portion of the business brought in about $30 million in net income on a GAAP basis in what was the third full quarter of its operations.
“The deposits bolster and diversify our sources of funding, enabling us to offer our best rates on loans, while generating impressive returns and improving net interest income revenue,” Noto said on the call.
The results “appear strong, especially considering interest rate and policy headwinds that SOFI continues to execute around,” wrote Jefferies analyst John Hecht in a report.
Looking ahead, Noto said, the company’s growth and improvement in overall GAAP net income margin “position us very well in 2023” for “reaching GAAP net income profitability in the fourth quarter.”
“The big beat on revenue and adjusted Ebitda are major positives of the 4Q results,” Mizuho analyst Dan Dolev wrote in a note to clients. “Moreover, the promise to deliver positive GAAP net income in 4Q 2023 should be well-received, as GAAP losses have been a key deterrent in 2022 for FinTech investors.”
The company’s fiscal first-quarter outlook calls for $40 million to $45 million in adjusted Ebitda, whereas analysts were expecting $50 million. Management also anticipates $260 million to $280 million in adjusted Ebitda for the full year, while the FactSet consensus was for $246 million.
“In our personal loans business, we expect to see modest growth as we balance taking advantage of ample headroom in this business given our current market share and differentiated product with a thoughtful and prudent approach to ensuring our credit remains very high quality,” Chief Financial Officer Chris Lapointe said on the earnings call. “We remain committed to underwriting to an industry-leading life of loan loss profile.”