SoFi Technologies’ (NASDAQ:SOFI) personal loan (or PL) originations continued to moderate, raising concerns over the company’s future growth. However, Mizuho Securities analyst Dan Dolev doesn’t see this as much of a problem. Dolev is bullish about SoFi. However, his price target of $6 implies a 10.18% downside potential.
It’s worth highlighting that the extension of the student loan payment moratorium and higher interest rate environment took a toll on SoFi’s student and home loan originations. However, stellar growth in its personal loans has helped SoFi offset the negatives. With the moderation in personal loan originations, SoFi’s growth could soften.
For instance, SoFi’s personal loan originations increased by 151% in Q1 of 2022. This growth rate slowed to 91% in Q2. Meanwhile, origination volumes increased by 71% and 50% in Q3 and Q4 of 20222, respectively.
The consistent moderation in personal loan origination volumes growth rate raises concerns about demand. However, this could be due to the company’s stringent underwriting criteria and increased coupons due to the rate increases.
SoFi’s borrowers have high incomes and FICO scores. During the Q4 conference call, SoFi announced that its personal loan borrowers have a weighted average income of $165,000. Moreover, they have a weighted average FICO score of 747.
Highlighting the personal loan originations, Dolev said, “Following multiple quarters of increases in PL originations, the pullback in originations from $2.8bn to $2.5bn. This breaks a trend of growing originations, which lasted nearly ~2-years from a low of $614mn in 4Q 2020 up to a high point of $2.8bn in 3Q 2022.”
However, he added that the “PL growth rates are not linear, which should lower concerns.”
Is SoFi a Buy or Hold?
Wall Street is cautiously optimistic about SoFi stock. It has received seven Buy and five Hold recommendations for a Moderate Buy consensus rating. Moreover, analysts’ price target of $7.17 implies 7.34% upside potential.
Bottom Line
While personal loan originations moderated, SoFi’s management remains upbeat and expects the high-margin personal loans business to mark modest growth in 2023. Meanwhile, the company will maintain its stringent underwriting criteria, which is good as it will lead to solid credit performance.
In Q1 of 2023, SoFi expects to deliver adjusted net revenue of $430 million to $440 million, representing a year-over-year growth of 34-37%. Meanwhile, SoFi’s balance sheet remains robust, with ample cash and liquidity. Moreover, its regulatory capital and leverage ratios remain strong.
