SoFi Technologies Inc. continues to win praise for its banking efforts after the digital financial-services company gave an upbeat earnings forecast and touted the benefits of its banking charter for the broader business.
The acquisition of a small community bank about a year ago enabled SoFi
to become a bank holding company. At the time, SoFi expected the banking move to lower its cost of funding and enable more competitive lending rates, and now its latest earnings report is showing some of the early results of its banking efforts.
“SoFi Bank continues to enable flexibility that is proving very valuable in the current macro/rate environment,” Jefferies analyst John Hecht wrote in a Monday evening report.
He added that SoFi’s deposits grew 46% sequentially “as a result of [SoFi’s] competitive rate offerings with [annual percentage yields] of 3.75% for checking/savings which are consistently repriced to remain competitive.”
Hecht has a buy rating and $8 target price on SoFi shares.
MoffettNathanson analyst Eugene Simuni wrote that so-called neobanks have to decide whether to become “real” banks themselves or partner with third-party banks for deposits. SoFi’s choice to do the former seems to be paying off, in his view.
“After obtaining the bank charter SoFi has been able to super-charge the growth of its digital bank account offering ― deposits rose from ~$1 [billion] to ~$7.3 [billion] over the course of 2022,” he wrote.
By using these deposits to finance loans, he said, SoFi has been able to rake in significant net interest income within its financial services business while also providing the lending business with a low-cost, stable funding source, which he characterized as “a unique advantage in a challenging credit market environment.”
While the digital banking field is crowded, Simuni thinks that SoFi’s product “is sufficiently differentiated to allow SoFi to become one of the leading providers in the space over the next several years.”
He rates the stock at outperform with a $10 price target.
Keefe, Bruyette & Woods analyst Michael Perito also acknowledged the banking contributions, though he’ll be looking for other drivers.
“To date, the revenue acceleration has been largely driven by deposit growth in the [SoFi] money product, to which the financial services segment is allocated revenue contribution for the spread earned on those deposits,” Perito wrote. “However, we’d note that capital has ground down considerably since the start of the year (15% leverage at bank versus 59% in [the first quarter of 2022]). To be clear, [SoFi] still has plenty of capital today, although we think it’s reasonable to assume that balance sheet growth (and therefore deposit growth) will have to slow in 2023 to a more measured pace from a capital-consumption standpoint.”
In his view, SoFi “will need to see a meaningful contribution from other areas to reach profitability and hit its guidance.” The company said Monday that it expects to reach GAAP profitability by the fourth quarter of 2023.
Perito has a market-perform rating and $5 target price on the stock.
SoFi shares rallied 12.5% in Monday’s trading following the earnings report but are off just under 1% in premarket trading Tuesday.