What Investors Need To Consider With SoFi’s Upcoming Earnings (NASDAQ:SOFI)

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Justin Sullivan

Elevator Pitch

I rate SoFi Technologies, Inc.’s (NASDAQ:SOFI) shares as a Hold.

In my prior Sept. 6, 2022, update for SOFI, I discussed about “Biden’s student loan forgiveness plan” and how this could potentially affect SoFi Technologies’ outlook. With this latest article, I provide a preview of SOFI’s Q3 2022 financial results.

I have considered SoFi Technologies’ management comments at a recent investor event and the sell-side’s consensus financial projections in evaluating the company’s near-term prospects. Based on my analysis, I’m of the opinion that SOFI’s third quarter financial performance should fall in line with market expectations. Given that I don’t expect any major positive or negative surprises relating to SOFI’s upcoming Q3 results announcement, I decide to stick with my Hold rating for SoFi Technologies.

Third Quarter Earnings Announcement Date For SOFI

SoFi Technologies will be reporting the company’s Q3 2022 earnings on Tuesday, Nov. 1, 2022, before the market opens, as highlighted in its earlier media release issued on Oct. 11, 2022.

The Market’s Expectations Of SoFi’s Upcoming Results Release

The Wall Street analysts are of the opinion that Q3 2022 will be a good quarter for SOFI, and the sell-side’s positive view of SoFi Technologies’ upcoming quarterly results is reflected in the consensus numbers.

According to the analysts’ consensus financial estimates obtained from S&P Capital IQ, SOFI is expected to achieve strong top line and EBITDA growth in the third quarter of the current year.

Specifically, Wall Street expects SoFi Technologies’ revenue to expand by +10.0% QoQ from $356.1 million in Q2 2022 to $391.8 million in Q3 2022. This translate to an impressive +41.3% YoY top line growth for SOFI, which isn’t that much slower than the company’s +54.0% YoY revenue increase in Q2 2022.

With regard to operating earnings, the sell-side sees SOFI registering a normalized EBITDA of $30.8 million for Q3 2022. This is equivalent to EBITDA growth rates of +200.1% YoY and +51.6% QoQ for SoFi Technologies in the third quarter.

In terms of the bottom line, SOFI is forecasted by the Wall Street analysts to record a normalized net loss per share of -$0.07 in the third quarter of 2022. This will represent a meaningful improvement from SoFi Technologies’ normalized net losses per share of -$0.12 and -$0.11 for Q3 2021 and Q2 2022, respectively.

In a nutshell, the market is anticipating that SoFi Technologies will report a reasonably strong set of results for the third quarter, considering expectations of rising revenue and EBITDA, and narrower losses.

In the subsequent section, I analyze whether SoFi Technologies is able to meet analysts’ expectations with its Q3 2022 financial results.

Q3 2022 Will Be An In-Line Quarter For SOFI

I take the view that SoFi Technologies’ Q3 2022 financial performance will be decent and in line with what the market is currently expecting.

At Goldman Sachs’ (GS) Communacopia + Technology Conference on Sept. 13, 2022, SOFI highlighted that “higher rates” have boosted the prospects of its “unsecured personal loan business.” SOFI Technologies explained that it sees greater demand for the company’s fixed interest rate “unsecured personal loan” products in the rising rate environment as a result of borrowers “terming out over a longer time period.” Inflationary cost pressures and higher interest rates also drove up demand for SOFI’s loans relating to home renovation, as most people decided against buying a new house now.

In addition, SoFi Technologies should have witnessed a significant uplift in net interest income for the third quarter of the year, thanks to a +135% QoQ increase in deposits to $2.7 billion as of June 30, 2022.

However, a substantial EBITDA and bottom line beat for SOFI in Q3 2022 is less likely. Taking into consideration weak macroeconomic conditions, SoFi Technologies’ financial services and technology platform segments are expected to see a more moderate pace of growth in the near term.

Notably, SoFi Technologies commented at the recent GS investor event in mid-September 2022 that “the team is executing,” when asked “about how SoFi is pacing towards those (full-year FY 2022 top line and EBITDA) goals.” This seems to suggest that SoFi is on track to meet its full-year guidance, taking into account its Q3 2022 performance.

In conclusion, I think that Q3 2022 will be an in-line quarter for SoFi Technologies. But I won’t expect positive surprises like a major EBITDA beat or much narrower losses than what analysts are currently forecasting.

Update On Student Loan Forgiveness Plan

I have previously noted in my early-September write-up for SoFi Technologies that the student loan forgiveness plan announcement “might mark the final extension of the student loan moratorium.”

Assuming that the student loan forgiveness plan is executed successfully and the loan moratorium doesn’t extend further beyond end-2022, SOFI should see a significant increase in revenue generated from student loan refinancing in 2023.

However, there’s a risk that the student loan forgiveness plan doesn’t go through due to political and legal hurdles. Seeking Alpha News recently reported on Oct. 21, 2022, that “a Federal appeals court” has “issued a stay that temporarily blocks the Biden administration’s plan to forgive billions of dollars in federal student loans.”

As such, I won’t be eager to incorporate higher FY 2023 student loan revenue estimates into my outlook for SOFI right now.

Concluding Thoughts

I continue to assign a Hold rating to SoFi Technologies. In my opinion, SOFI’s Q3 2022 results should be in-line with expectations, implying the lack of any significant surprises that will move its share price. Furthermore, there’s still uncertainty about SoFi Technologies’ 2023 student loan revenue outlook, considering that the student loan forgiveness plan seems to still be in limbo.

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