Please ensure Javascript is enabled for purposes of website accessibility

LexinFintech Delivers a Record in Loan Issuance and Active Users

By Lawrence Nga - Updated Jun 7, 2021 at 10:26AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese consumer finance company has just delivered one of its best quarters ever.

LexinFintech Holdings (LX 0.48%) 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.

Two women shop at a luxury boutique.

Image source: Getty Images.

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.

Lawrence Nga owns shares of Lexinfintech Holdings Ltd. The Motley Fool owns shares of and recommends AFTERPAY T FPO. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

LexinFintech Holdings Ltd. Stock Quote
LexinFintech Holdings Ltd.
LX
$2.08 (0.48%) $0.01
Afterpay Touch Group Stock Quote
Afterpay Touch Group
AFTP.F

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.