Shares of SoFi Technologies (SOFI 0.69%) finished Monday up 12.5%, even as the overall Nasdaq Composite (^IXIC -1.39%) fell nearly 2% that day. It was no surprise: SoFi released its fourth-quarter and full-year earnings yesterday, which trounced expectations for revenue growth and improving profitability.
The company also offered strong guidance for about 27% in revenue growth in the year ahead, while saying it would achieve profitability on the basis of generally accepted accounting principles (GAAP) by the fourth quarter 2023 -- a big milestone. The strong guidance ran counter to some other financial and fintech companies that are turning more cautious in the current environment.
Here are four different ways in which this rising fintech star is outpacing rivals and aims to keep growing.
Personal loans exploded in 2022, and will continue rising
Some thought SoFi would be hurt by the federal student loan moratorium, as its legacy core product was in student loan refinancing. That proved somewhat true, as student loan originations fell by nearly half in 2022, from $4.3 billion to $2.2 billion.
But SoFi made up for that and then some with enormous growth in the personal loan segment, where originations grew from $5.4 billion in 2021 to $9.8 billion in 2022.
Some might look at that acceleration with trepidation, especially wth the fear the economy could enter a recession in 2023. But management was also quick to point out that its personal loans are aimed at cutomers with high FICO scores (about 747) and an average income of $165,000.
Also importantly, SoFi acquired a banking license in January of 2022. That was ideal timing since the license allowed it to take in low-cost customer deposits, which have already surged to over $7 billion.
Without the license, it would have had to sell or securitize the loans it originated, and with many loan buyers pulling back last year, SoFi might not have been able to grow originations as fast -- or at all. Having deposits is allowing SoFi to steal market share away from other fintechs that don't have their own banking license and are thus dependent on third-party loan buyers.
And management notes that it only has about 6% market share in personal loans, so it has room to grow even while staying conservative on underwriting.
SoFi guided for more "modest growth" in personal lending in 2023, which is perhaps prudent, given the economy. In any case, with the student loan moratorium continuing through at least June 30, it appears that personal loans will again carry much of SoFi's growth in 2023.
Financial services are picking up
In 2022, SoFi was also able to grow financial services by a tremendous amount. These include SoFi Money checking and savings accounts, its credit card, SoFi Relay credit monitoring, and the SoFi Invest brokerage with its growing range of capabilities.
Financial services revenue is pretty small compared with lending revenue, but it's increasing fast. It surged 189% to $168 million in 2022. While it did see its contribution losses also grow to $199 million (where costs and expenses exceeded revenue), that amounted to a contribution-loss margin of 119%, which was an improvement from 2021, when the contribution-loss margin was 232%.
Image source: Getty Images.
SoFi Invest added a range of capabilities in 2022, including margin trading in February, extended trading hours in June, Web3 and smart energy exchange-traded funds in August, and options trading in November. The company also launched a pay-in-four installment plan in December for those paying with SoFi checking accounts.
Management noted that revenue per financial services product nearly doubled from a year ago and grew 25% sequentially in the fourth quarter to an annualized revenue per product per person of $40 -- should the average revenue per user of SoFi's financial products continue to grow, it should see positive operating leverage with greater scale this year.
Further out: International and SMB growth
While personal loans and financial products should bolster SoFi's 27% guided growth in 2023, CEO Anthony Noto also mentioned two other different ways for the company to expand beyond this year.
First, SoFi bought its second fintech platform company, Technisys, in March of last year, and merged the cloud-based banking platform with its existing Galileo banking-as-a-service platform, which it had bought in 2020. During the quarter, management noted Technisys picked up its first digital deal in Mexico, and Galileo also reported strong growth in Latin America as well.
On the conference call with analysts, Noto said, "The opportunity to expand geographically is bigger than you could imagine." But he added the caveat that SoFi is going to pace its investments, and look to penetrate Latin America without any other major geographic expansion plans this year.
In addition to geographical expansion, Noto also said that the small and medium business (SMB) space could be another attractive market over time, since it remains a consumer-only company at the moment. He said that many of its clients run their own small and medium businesses and have asked for business checking and savings products.
In fact, many had asked SoFi for Paycheck Protection Program loans during the pandemic, but it had to redirect them to other banks set up to make such loans.
Noto said now that the company has a banking license, it could very well expand into the SMB area, which is "a huge opportunity for us." While the SMB space is not on SoFi's 2023 spending plans, he said, it could make its way there in the second half should the economy do better than feared and SoFi reaches profitability earlier than expected.
As of now, however, it appears that SoFi will take a more measured and deliberate approach to international and SMB opportunities. Therefore, this year should see the company aim to further penetrate existing markets in personal loans, financial products, and Latin America with Galileo and Technisys. Judging from its results and the recent outlook, there is plenty of opportunity within these existing markets in 2023.
