- Biden administration plans to extend pandemic pause for federally-backed student loans beyond May 1
- Sofi Technologies (NASDAQ:SOFI) CEO Anthony Noto thinks it will do more harm than good
- Investors shouldn’t worry about what this means for SOFI shares
In early March, White House Chief of Staff Ron Klain said President Biden could prolong frost on federal student loan repayments beyond the May 1 deadline. While this may sound like bad news for SOFI stocks, it won’t have much of an effect on the company’s overall business.
“SoFi is in the student loan business,” Noto pointed out in an interview with Yahoo finance. “So we are affected by this indecision. But that’s not the motivation. SoFi will be fine either way. … We made over $1 billion in revenue in 2021 in our first full year of profitability on an EBITDA basis, while suspending the federal student loan program.
That doesn’t mean SoFi CEO Anthony Noto shouldn’t be annoyed by the president for his indecision on the matter.
Since March 2020, according to Noto’s March 17 blog post, suspensions have cost taxpayers dearly $150 billion. He makes excellent points about what should happen on that front.
Either way, SoFi’s business is doing very well. Here’s why.
Action SOFI and its student loans
As Noto pointed out in his blog post, the economy and his student loan business are doing well.
“As President Biden boasted in his State of the Union address, the economy grew at a rate of 5.7% last year; more than 6.6 million jobs have been created; unemployment fell at its fastest rate on record; and the number of workers filing for unemployment insurance has dropped by more than 70%,” Noto said. “At SoFi, 98.9% of our borrowers make their monthly payments on time compared to 15% who were on hold in March 2020.”
Thus, 1.1% of its loans are not repaid on time at the moment, compared to 15% in March 2020. That’s a big improvement. The company reported Q4 2021 results in early March. Several points are worth mentioning regarding student debt.
In the three months ended December 31, 2021, it generated $1.46 billion in student loans, 51% more than in the fourth quarter of 2020. For the full fiscal year 2021, it generated 4, $29 billion in student loans, down 13% from 2020. The company managed to increase originations 51% in the fourth quarter despite the Biden administration extending the pause until May 2.
To the P. 8 of its Q4 2021 report, SoFi’s guidance suggests a $32.5 million impact (midpoint of guidance) on revenue in Q1 2022, as well as a $22.5 million decline in the contribution benefit.
Yes, it’s a headwind, but it won’t make a difference in the long run.
The rest of his stuff
p. 77 of the company’s 10-K 2021 gives you a good idea of how SoFi’s business has grown over the past three years. It has three segments to present: loans, technology platform and financial services. The segments had three-year revenue growth of 72.4%, 24,414% and 1,389.7%, respectively. Its technology platform barely existed three years ago, while financial services accounted for just $3.9 million in net revenue.
In terms of profitability, it went from an adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) loss of $149.2 million in 2019 to a profit of $30.2 million in 2021. is a 120.2% improvement over three years. It has had six consecutive quarters of positive adjusted EBITDA.
Its total membership over the past three years has increased by 254.4% to 3.46 million in 2021, from less than one million in 2019.
Over the past three years, its non-interest income has increased 549.9% to $732.6 million (74.4% of total net income) from $112.8 million (25. 5%) in 2019. All three segments saw strong three-year increases in non-interest revenue.
As Costco (NASDAQ:COST), the more members SoFi has, the better. Now that she has SoFi Bank, her net interest income will start to grow, becoming a bigger part of her business.
Currently generating revenue from six silos: SoFi Invest, SoFi Money, Personal Loans, Home Loans, Student Loans, and Credit Cards, I can see him adding more revenue streams in the future through his banking charter.
SoFi has made a name for itself with student loans. However, Anthony Noto focuses on the 3.46 million members and what he can do to secure their financial lives.
He launched SoFi Relay in 2019 to help its members better track their overall financial situation. It’s free.
The longer a member stays with SoFi, the more products and services they will use. Unlike banks, they understand that all the silos work together. One is not more important than the other. For example, student loans may have caused the company to dance, but to stay in the game it had to diversify.
In the scheme of things, the Biden administration’s extension of the pandemic pause in student loan repayments won’t hurt the company as much as it would have two or three years ago.
The diversification plan put in place by Noto is working. The pandemic pause in student loan repayments is positive proof of this.
As of the date of publication, Will Ashworth had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.
Will Ashworth has been writing about investing full time since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and many others in the US and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.