SOFI Is Thriving In A Deteriorating Macro Environment
Despite a global recession, SoFi's growth remained robust, with the company adding the fourth-highest number of new subscribers ever in Q3 2022. The SoFi platform had 4.7 million user accounts at the end of the third quarter of 2022, increasing by 424 thousand during the quarter. SoFi is on track to surpass 5 million accounts by the end of the year, thanks to the company's robust and continuous growth.
A majority of SoFi's borrower base has firm credit profiles. In the recent earnings call, SoFi management emphasized the role of the company's high-FICO borrower base (746 on personal loans in Q3 2022) as a safety net if the economy deteriorates further. In unsecured personal loans, SoFi aims for a 6-8% life-of-loan loss, which remained within the company's desired range in Q3. The low on-balance-sheet delinquency rate also reassured investors of 30 basis points in the previous quarter. SoFi monitors early-stage delinquencies and takes appropriate measures if problems occur. So far, delinquencies have remained below pre-COVID levels.
Although the company's financial strength remains solid, the FED chairman has continued to feed the bears with hawkish comments, and analysts across the board have been raising their expectations of the FED's terminal rate. The market is now pricing in a forward terminal Fed Fund rates (FFR) to 5.14% in June 2023, up from the previous 4.6% median projections.
SoFi has been a beneficiary of higher rates as they have contributed to an increased net interest income for the company. However, higher rates also increase the risk of defaults for the company, elevating credit risk for the company. In addition, higher rates will have an impact on SoFi's home refinancing business, which is why the market remains concerned about the company, and the sell-off has continued despite robust Q3 results.
