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shares of SoFi technology (SOFI 0.74%) Monday was up 12.5%, but overall NASDAQ Composite (^IXIC 0.36%) It fell nearly 2% on the day. It was a matter of course. SoFi announced its fourth quarter and full year earnings yesterday. This beat expectations for revenue growth and improved profitability.
The company also says it will achieve profitability under generally accepted accounting principles (GAAP) by the fourth quarter of 2023, while providing strong guidance of approximately 27% revenue growth over the next year. Did. This is a big milestone. The strong guidance ran counter to some other financial and fintech companies that have become more cautious in the current environment.
Here are four ways this burgeoning fintech star aims to outperform its rivals and continue to grow.
Personal loans will explode in 2022 and will continue to rise
Some thought the federal moratorium on student loans would hurt SoFi, as SoFi’s traditional core product has been student loan refinancing. This proved somewhat true, as student loan composition has almost halved from $4.3 billion to $2.2 billion in 2022.
However, SoFi made up for it, with some companies seeing significant growth in the personal loans segment, increasing from $5.4 billion in 2021 to $9.8 billion in 2022.
Some may fear its acceleration, fearing that the economy could plunge into recession, especially in 2023. FICO score (about 747) and an average income of $165,000.
Also importantly, SoFi received its banking license in January 2022. This was ideal timing, as the license allows him to accept low-cost customer deposits, already skyrocketing him to over $7 billion.
Without a license, the loans it originated would have to be sold or securitized, and many loan buyers pulled out last year, so SoFi may not have been able to grow originations as quickly. Having a deposit allows SoFi to take market share from other fintechs that do not have their own banking licenses and rely on third-party loan buyers.
Management also notes that with only about 6% market share in personal loans, there is room for growth while remaining conservative in underwriting.
SoFi ushers in ‘moderate growth’ in personal lending in 2023. This is probably wise given the economy. In any case, personal loans will once again be responsible for much of SoFi’s growth in 2023, as the moratorium on student loans runs until at least June 30.
Financial services are picking up
In 2022, SoFi could also significantly grow financial services. These include SoFi Money checking and savings accounts, its credit cards, SoFi Relay credit monitoring, and the expanding SoFi Invest brokerage.
Revenues from financial services are considerably smaller than those from lending, but are growing rapidly. In 2022, he will jump 189% to $168 million. Contribution losses also increased for him to $199 million (where costs and expenses exceed earnings), but the contribution loss margin stood at 119%, an improvement from 2021. When the contribution loss margin was 232%.
Image Source: Getty Images.
SoFi Invest added a variety of features in 2022, including margin trading in February, extended trading hours in June, Web3 and Smart Energy ETFs in August, and options trading in November. The company also launched a four-payment installment plan in December for those who pay with SoFi checking accounts.
Management noted that revenue per financial services product nearly doubled year-over-year and grew 25% in a row in the fourth quarter to $40 per capita annual revenue per product. pointed out. We should see positive operating leverage on a larger scale this year.
Moving Forward: International and SMB Growth
Personal loans and financial products should drive SoFi’s 27% growth in 2023, but CEO Anthony Noto also mentioned two other ways the company is looking to expand this year and beyond.
First, SoFi acquired its second fintech platform company, Technisys, last March, merging its cloud-based banking platform with its existing banking-as-a-service platform, Galileo, which it acquired in 2020. Management noted that Technisys won its first digital contract in Mexico, while Galileo also reported strong growth in Latin America.
“The opportunity to expand geographically is bigger than you can imagine,” Noto said on a conference call with analysts. But he added a caveat that SoFi is pacing its investments and looking to expand into Latin America this year without other major geographic expansion plans.
In addition to geographic expansion, Noto also said the small and medium-sized business (SMB) space could become another attractive market over time as it remains a consumer-only enterprise for now. said. He said many of his customers run small businesses and want business checks and savings products.
In fact, during the pandemic, many people asked SoFi for Paycheck Protection Program loans, but had to redirect them to other banks set up to make such loans.
Noto said that now that the company has a banking license, it is very likely that it will expand into the SMB space, which is “a big opportunity for us.” The SMB space is not in his 2023 spending plan for SoFi, but if the economy turns out better than feared and SoFi achieves profitability sooner than expected, it will be there in the second half. He said it could reach
For now, however, SoFi seems to be taking a more cautious and cautious approach to international and SMB opportunities. Therefore, this year, together with Galileo and Technisys, we should aim to further penetrate the existing markets of personal loans, financial products and Latin America. Judging by the results and recent outlook, there are many opportunities for these existing markets in 2023.
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