Can Weakening Credit Quality Impact SoFi Technologies Fair Value Marks? Analysts See Tech Growth, Comfortable Total Capital Ratio

SoFi Technologies, Inc. SOFI shares are trading lower on Tuesday.

Yesterday, the company reported fiscal first-quarter 2024 results, where adjusted revenue increased 26% year-on-year to $580.648 million, beating the consensus of $555.997 million. EPS of $0.02 beat the consensus of $0.01. 

According to Wedbush analyst David J. Chiaverini, slowing growth and credit quality weakness highlight the transition year for the company.

The analyst reiterated an Underperform rating with a forecast of $4.

Credit quality has been weakening, and it may continue to weaken given the macro backdrop, which could negatively impact the company’s fair value marks, Chiaverini adds. 

Greater proportion of losses occur sooner on more recent vintages, although losses are currently expected to trend lower in later months, according to the company.

Growth in tech platform revenue is a major component of the company’s current FY24 guidance, per the analyst.

Tech platform revenue should be seasonally weaker in the second quarter, and the analyst sees this could result in difficulty achieving 20% tech revenue growth guidance this year, given the steep implied ramp-up in 2H24.

Other incremental negatives include loan origination and sales revenue, which are the lowest reported quarterly going back several years.

Per the analyst, balance sheet capacity for loan growth could be reached in the first half of the year as the company’s total capital ratio appears to be at the company’s comfort level. 

Slower loan growth in 2024/2025 could lead to materially slower revenue growth relative to 2021-2023, the analyst adds.

Mizuho analyst Dan Dolev reiterated a Buy rating with an unchanged forecast of $12.

The boost in the total capital ratio from 15.3% to 17.3% indicates additional lending capacity if needed, which can drive potential upside to 2024 revenue, Dolev adds.

Price Action: SOFI shares are trading lower by 4% to $6.76 at last check Tuesday. 

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