LexinFintech Holdings (LX +3.85%) just released impressive results for the first quarter of 2021. The Chinese consumer finance platform's adjusted net income hit a new all-time high of 771 million yuan (roughly $121 million) on the back of record loan originations and quarterly active users.
But beyond the headline numbers, there's a lot more to digest in LexinFintech's latest earnings release. Here are three important takeaways from the report.
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The COVID-19 recovery is accelerating
The novel coronavirus pandemic has been a destructive event all over the world. When the virus started spreading throughout China early last year, LexinFintech was among the companies hit hard, reporting a net loss in the first quarter due to surging credit-loss provisions. But LexinFintech would go on to stage a steady recovery through 2020, closing out the year in the black. In fact, its fourth-quarter net profit was down just 2% from the same period the year before -- a clear sign that business was returning to normal.
LexinFintech's latest earnings confirm that its recovery is gaining steam. Net income by generally accepted accounting principles (GAAP) hit 711 million yuan in the first quarter of 2021 -- a turnaround from a net loss of 678 million yuan a year ago. This robust underlying performance was driven by an 18% rise in revenue, as well as a drop in credit-loss provisions.
Along with the solid financial performance, LexinFintech also reported exceptional operating metrics. Loan origination and loan balances hit record levels, growing 58% and 41% to 53.8 billion yuan and 82.4 billion yuan, respectively. In addition, quarterly active users -- customers who used LexinFintech's loan products during the quarter -- rose 29% to a record 8.24 million.
Importantly, credit quality has continued to improve. The 90-days-plus delinquency ratio -- which tracks borrowers who are at least 90 days late in their repayments -- fell to 1.84%, down from 1.95% in the fourth quarter of 2020.
Non-credit platform-based income grew rapidly
Up to 2020, LexinFintech had operated mainly as a loan facilitation platform -- matching borrowers and lenders (such as banks) for a fee. As part of a guarantee provided to its lending partners, LexinFintech puts up 5% to 10% of the loan issued. These funds cover the lenders' loss of interest and capital.
But since the second half of 2020, LexinFintech has begun to shift toward a capital-light business model that does not require it to guarantee any loans. Under this model, LexinFintech acts primarily as a technology partner to lenders, boosting their capability in areas such as customer acquisition and risk management. In exchange, LexinFintech earns a pure technology service fee -- while lenders bear all the financial risk.
In the most recent quarter, income from this business grew 122% to 636 million yuan. As LexinFintech issues more of its loans using this model, its income should become increasingly stable and predictable. In other words, investors can reasonably expect LexinFintech's earnings quality to improve from here.
LexinFintech's BNPL bet is gaining serious traction
In February, LexinFintech unveiled Maiya -- one of China's first buy-now-pay-later providers -- as part of its new growth initiatives. With Maiya, users do not have to pay any interest when they split purchases into installments. Instead, LexinFintech charges merchants a fee for every transaction made through Maiya.
While Maiya is still a very new product, it is already proving to be a hit among Chinese consumers. In the first quarter of 2021, it recorded 200,000 users and 300 merchants transacting. Maiya hit 60 million yuan of gross merchandise value (GMV) for the quarter, a sign of robust market demand.
In fact, LexinFintech expects Maiya to record 300 million yuan of GMV in the second quarter. At this level, LexinFintech is expecting Maiya to reach a 1.2 billion yuan annualized GMV run rate by the end of the next quarter. That's impressive, considering the service is barely four months old. But it also speaks volumes about the potential growth this product could unlock for LexinFintech. If LexinFintech can keep growing this business, Maiya has a shot at becoming the Afterpay of China -- creating enormous value for its shareholders.
What's next for LexinFintech
In the first quarter of 2021, LexinFintech delivered solid top-line growth, improved credit quality, and had a successful rollout of a promising new business in Maiya. The company believes it is firmly on track to hit its 2021 loan origination target of between 240 billion yuan and 250 billion yuan. In other words, investors can expect the company to deliver even better financial performance for the rest of the year.
