SoFi Earnings: Strong Financial Services Revenue and NIMs Offset Slowing Loan Growth

Key Morningstar Metrics for SoFi Technologies

• Fair Value Estimate: $13.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of SoFi Technologies’ Earnings

SoFi Technologies SoFi reported decent second-quarter earnings, as strong results from its financial services helped offset some of the headwinds from the firm’s more conservative approach to loan origination. Adjusted net revenue increased 22% from last year and 3% from the previous quarter to $597 million. Meanwhile, diluted EPS increased to $0.01 from a loss of $0.06 last year. As we incorporate these results, we do not expect to materially alter our fair value estimate of $13 per share, and we see the shares as undervalued.

Net interest income was still the largest growth driver, increasing 41.7% from last year, though only 2.5% sequentially, to $412.6 million. The rapid year-over-year increase was from strong loan growth and net interest margin expansion, with SoFi’s NIM increasing to 5.83% from 5.74% last year. This expansion was primarily the result of SoFi’s strong retail deposit growth, with deposits now making up 88% of total funding, up from 78%.

While SoFi still has nearly $2 billion in brokered deposits it can replace, the firm has mostly run out of room for easy improvements in its funding structure. As a result, we do not expect further margin expansion, particularly as the firm expands its senior secured holdings, which carry lower yields than its personal loan products.

On the other hand, SoFi’s average loan balance increased 35.8% from last year to $24.2 billion, though the sequential growth rate was much lower at 2.8%. The company has been taking a more conservative approach to its balance sheet in 2024, deemphasizing personal loan growth and executing nearly $1.6 billion in loan sales during the quarter. We like this approach, as we did not believe its balance sheet could maintain the kind of growth rates seen in 2023 and 2022 and were uncomfortable with the firm’s increasing reliance on personal loans. That said, this will lead to lower growth in 2024.