SoFi Technologies (NASDAQ: SOFI) has done an excellent job expanding its customer base and growing revenue. However, it has contended with sluggish loan growth in the high-interest rate environment, leading to investor skepticism about its short-term prospects. As a result, the stock remains 62% below its all-time high price in 2021.
However, the company has found multiple levers for growth and is seeing encouraging progress in its nonconsumer business. If you're considering buying SoFi today, here's what you should know.
In its early days, SoFi focused on helping people refinance their student loan debt. Then in 2020, the pandemic and policies around student loan forbearance forced SoFi to reevaluate its business. One area that helped drive its ongoing growth was personal lending. From 2020 to 2023, SoFi's personal loan originations grew from $2.6 billion to $13.8 billion.
The higher-interest rate environment of the past couple of years has been a double-edged sword for SoFi. On one hand, consumers have had to grapple with higher interest rates, which could make it harder for them to pay down their debts.
In the second quarter, SoFi charged off $151.8 million in personal loans, giving it a charge-off ratio of 3.84% on its $15.9 billion personal loan portfolio. This is up from 2.94% one year ago and is one metric that investors have kept a close eye on. Charge-offs have risen across the banking sector over the past couple of years, which many attribute to normalizing conditions rather than systemic weakness across the consumer.
Additionally, SoFi projects that its lending segment revenue will decline 5% to 8% compared to last year. CEO Anthony Noto told investors during the first quarter that the fintech is taking "a more conservative approach in light of macroeconomic uncertainty."
Conversely, higher interest rates have helped SoFi grow its net interest income significantly. One big reason for this was its 2022 acquisition of Golden Pacific Bancorp, which enabled SoFi to hold deposits and thus, more loans on its books. Since acquiring the bank, its total deposits have grown to nearly $23 billion, thanks to its high-yielding savings accounts offering an annual yield of up to 4.5%.
Last year, SoFi brought in almost $1.3 billion in net interest income, up over 400% from 2021. This solid growth continued through the first half of this year, with its net interest income increasing 55% to $815 million.