SoFi Technologies, a company that started as a student debt refinancer, is poised for good things as people begin to repay their loans once again after a break of over three years. Operating across three segments - lending, financial services, and technology platform - SoFi has felt the weight of the repayment halt on its student-lending operation.
In the second quarter, SoFi originated approximately $395 million in student loans, significantly lower than the $1.19 billion recorded in the same quarter four years ago. Borrowers were eager to lock in lower rates or extend their repayment period to reduce their monthly payment amounts.
With the resumption of loan payments, there is expected to be a resetting of demand, according to Jefferies analyst John Hecht. Hecht, who rates the stock at Buy, explains that when individuals are not required to make payments, they are unlikely to consider refinancing. However, as payments resume, there will be a renewed need for refinancing.
Profitability boosts and an additional layer of revenue growth insulation are crucial to SoFi, according to Oppenheimer analyst Dominick Gabriele, who rates the shares at Perform. Refinancing plays a vital role in providing these benefits to the company.
While interest rates have risen due to the Federal Reserve's measures against inflation, some individuals may be deterred from refinancing if the rates offered on new loans are higher than their existing rates. Nevertheless, Hecht believes there is still a substantial opportunity for SoFi's origination volumes and growth within this category of business.
The increasing brand awareness of SoFi over the past few years, such as the notable SoFi Stadium near Los Angeles, suggests that the company may gain market share as more people recognize its name.
Analysts tracked by FactSet expect SoFi to achieve a student loan origination volume of $703 million in the third quarter and $1.09 billion in the fourth quarter.
SoFi: Refinancing as a Gateway
By Emily Dattilo
The potential of refinancing to facilitate customers' engagement with SoFi has caught the attention of Truist analyst Andrew Jeffrey. Jeffrey, who rates shares at Buy, believes that once individuals have experienced the company's services, they might be inclined to explore additional offerings such as savings and checking accounts, access to initial public offerings, and more.
Highlighting the significance of building relationships alongside financial transactions, Jeffrey suggests that the focus on student loans may be exaggerated. Instead, he asserts that personal loans represent the primary driver of growth for SoFi. In fact, during the last quarter, the volume of personal loans reached an impressive $3.74 billion, surpassing both student loans and home loans. While personal loans will continue to fuel growth, Jeffrey anticipates that the resumption of repayments will prompt an increase in contributions from student loans.
The impact of these developments on SoFi's stock is a topic of interest for Moffett Nathanson Eugene Simuni, who rates shares at Market Outperform. Simuni suggests that the potential benefits have already been priced into the stock, evident in its 68% increase between June 1 and July 31, as reported by Dow Jones Market Data.
The question that arises now is whether student loan originations will surpass or fall short of expectations. Analysts are divided in their outlook, with 37% rating the stock as Buy, 42% as Neutral, and 21% as Sell, according to FactSet. Despite this divergence, one thing remains clear: SoFi's stock has gained an impressive 73% year-to-date.
