Sofi Tech's Lending And Financial Services Momentum Well Above Estimates: Goldman Sachs Raises Forecast

Goldman Sachs analyst Michael Ng reiterated a Neutral rating on Sofi Technologies Inc SOFI with a price target of $7.50.

Ng noted Sofi Technologies upgraded its full-year net income outlook to $175 million—$185 million (versus $165 million—$175 million prior).

The analyst writes that adjusted EBITDA margins should continue to ramp throughout the year to 25% for the full year 2024 as the company optimizes its capital structure towards using lower-cost deposits as a funding source and improves unit economics on Credit Card and Investment products within the Financial Services segment.

Ng flagged that Financial Services growth was primarily due to improved monetization driven by higher deposits and spending levels within SoFi Money, more significant AUM within SoFi Invest, and an increase in Credit Card spending.

Sofi Technologies’ deposits totaled $23.0 billion at quarter-end (versus $21.6 billion at fiscal 2024 first-quarter). Ng noted continued growth in deposits to reduce reliance on warehouse funding.

In the second quarter, lending revenue of $339 million beat Goldman Sachs’ estimate and consensus of $284 million and $300 million, driven by a ~$1 billion beat in personal loan originations ($4.2 billion versus Goldman Sachs’ estimate and consensus of $3.2 billion).

According to Sofi Technologies, it was able to drive origination growth while maintaining stringent underwriting standards.

In addition, the company’s second-quarter 90-day personal loan delinquency rate decreased to 64 bps (versus 72 bps in the first quarter).

Loan performance will remain in focus given that Sofi Technologies’ personal loan annualized net charge-off rate of 3.84% (up versus 3.45% in the first quarter) was flattered by a $69 million delinquent loan asset sale in the quarter (~5.4% adjusted for this), the analyst said.

He said that personal loan origination volumes of $4.2 billion were well above Goldman Sachs and Visible Alpha’s consensus of $3.2 billion despite increasing concerns about consumer health. However, Sofi Technologies’ customer base skews prime.

Separately, Sofi Technologies lowered its outlook for Tech Platform segment growth for 2024 to mid-to-high teens percentage (versus 20% yoy growth prior) as large deals take longer to ramp than expected, particularly in Latin America.

That said, other elements of Sofi Technologies’ outlook were encouraging, including a raised outlook for Financial Services segment growth and deposits growth and Sofi Technologies’ third consecutive quarter of positive GAAP net income.

Ng increased his fiscal 2024, 2025, and 2026 revenue estimates by 5% on average to reflect Sofi Technologies’ latest outlook for personal lending & financial services.

Ng projected fiscal 2024 revenue and EPS of $2.52 billion (prior $2.50 billion) and $0.11 (prior $0.08). The analyst expects fiscal 2025 revenue and EPS of $3.02 billion (prior $2.87 billion) and $0.25 (prior $0.12). He estimates fiscal 2026 revenue and EPS of $3.81 billion (prior $3.49 billion) and $0.56 (prior $0.35).

Price Action: SOFI shares are trading higher by 4.04% to $7.725 at last check Wednesday. 

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