SoFi Technologies shares fell by up to 11% at the opening of the market on Tuesday, despite the company reporting excellent earnings. The stock then began to reduce losses. Experts attributed this to the fact that it was a pause in the recent rally the share had experienced before earnings.
This drop came following a pre-market rally, and after an impressive 53% increase in the last three months. Investor anticipation was mainly responsible for this and the positive performance of fintech competitors like LendingClub.
The stock had lost some of its losses, and was trading red at 10:29am.
Stocks have risen to a new 52-week-high of $11.34 and continue to be above the majority of long- and shorter-term moving-averages.
Strongest quarter in our history: CEO
SoFi reported $697m in revenue for Q3, a 30 percent increase over the previous year. This was higher than analysts’ predictions of $636m.
Earnings per share were 5 cents, exceeding the consensus of 4 cents.
Results show the success of the company in growing its financial services and technology segment, which accounts for nearly half the adjusted revenue at SoFi, up from just 39% last year.
The CEO of SoFi, Anthony Noto, described this quarter as the “strongest in our history,” and attributed the success to SoFi’s sustainable growth strategy, innovative brand, and strong branding.
In the last quarter of 2010, almost 9 million new members joined.
Credit performance is a key driver of optimism
SoFi’s credit performance was one of the most notable aspects of its quarterly results.
SoFi’s charge-off ratio was 3.52% in the third quarter, down from its previous rate of 3.84%.
Analysts were impressed by the company’s ability to reduce its net charge off rate from around 8% to just 5.0%.
MarketWatch quoted Dan Dolev of Mizuho as saying that the rising number of delinquent loans was a concern for investors.
Timothy Switzer, Keefe, Bruyette & Woods, also shared a similar opinion, stating that SoFi’s main positive outcome is the credit improvement.
Switzer said that “deteriorating credit trend would have the greatest negative impact on SoFi capital and valuation”. He added that SoFi portfolio’s credit peak was a quarter sooner than anticipated, indicating resilience.
Growth in lending and guidance
Personal-loan volume grew by 26%, reaching a new record of $4.9 billion. Student-loan, home-loan, and other lending volumes also grew year over year.
The growth in lending was positive for SoFi’s share of the consumer loan market.
SoFi has increased its guidance for full-year adjusted EBITDA (earnings before interest, tax, depreciation and amortization) to between $640m to $645m, up from the previous range of 605m to 615m.
The company also raised its net revenue forecast to $2.535 billion to $2.550.
John Hecht, Jefferies’ analyst, called the upgrade to guidance “positive,” noting that it exceeded the Q3 profit beat.
Hecht and other analysts see SoFi’s shift to fee-based, capital-light revenue streams as an effective path towards growth.
Investors may already have priced in SoFi’s strong performance given its recent share price surge.
Analysts will be watching to see whether SoFi is able to maintain its growth rate despite the changing market conditions.
The post Why did SoFi share prices fall 11% after reporting impressive earnings? This post may change as new information unfolds
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