Fed rate hikes ‘causing personal loan refinance boom’, says SoFi CEO

SoFi CEO Anthony Noto joins Yahoo Finance Live to discuss earnings, consumer balance sheets, debt refinancing, as well as the outlook for platforms like Twitter.

Video transcript

Happy to see you again. Shares of SoFi jumped this morning after the financial services company beat analysts’ expectations for the third quarter and raised its full-year forecast for the third consecutive quarter.

Yahoo Finance CEO Anthony Noto and Brian Sozzi are also in the house to discuss the results. Anthony, I just want to ask you about the results here, doubled your GAAP net income by 56% to $424 million. How would you describe these results?

ANTOINE NOTO: The results truly reflect the diversification we enjoy because we are a one-stop shop for financial services products and provide the ability to borrow, save, spend, invest and protect.

So we’re seeing businesses like personal loans offset businesses like home loans and student loans, in addition to our SoFi checking and savings account where we’re offering 2.5% on checks with direct deposit and 3% later this week on savings, really driving strong account openings, which leads to deposits, and that leads to more spending.

There are very strong trends in investment, which is also diversified. We have single stocks as well as cryptocurrencies, robot accounts and ETFs. Then we also have credit card and insurance products.

So the continued growth that we’re seeing with our sixth consecutive quarter of revenue reflects our ability to weather the market volatility, the macro backdrop, because of the business diversification that we have.

Anthony, mentioned on the earnings call a while ago that you haven’t really had a year where everything fell into place. Do you think you will have this year next year?

ANTOINE NOTO: I think from the point of view of how SoFi works, we do. This year was dedicated to the transition to a bank. The past year has been dedicated to transitioning to a public company and navigating the process with a merger of PSPC into a public company.

The year before, we were still in build mode on the tech stack platform. Our Galileo and Texas businesses are doing quite well. And that was a big part of the story in 2020.

And all the while, I’ve really been dealing with a student loan refinance company depressed because of the federal student loan moratorium. The economy is therefore undeniably volatile. And there is a lot of uncertainty.

If it remains at a contraction of minus 2% or minus 1%, I think we will be well positioned to continue driving the larger trends, especially with the student loan moratorium ending in December.

And when that ends in December, Anthony, what will that mean for your results for the first half of next year? Is it a profit boom? What does it look like?

There are so many variables we need to know to answer this question. I think if the environment is exactly the same as it is today, which is unlikely, we would certainly benefit from a resurgence in demand for student loan refinancing, and from still strong trends in businesses doing well now.

And we think our mortgage business will be in a much better position early next year, given the number of changes we’ve made to technology and the ability to close a purchased mortgage faster, which which is more critical than in a refinancing market.

So I feel like we’re heading into the expected year to do very well and set more records. If the economy stays where it is or a little less from a contraction standpoint, we’ll be in a very, very good position.

We want compound growth. We grew 51% this quarter on an annual basis in revenue with very strong earnings and 61% membership growth. We want to maintain these fairly high growth rates.

Anthony, your business is getting stronger. And I want to know if there’s anything in your earnings results that would indicate trends, perhaps, that would reflect what’s going on in the broader economy, something that might surprise us or just confirm what happens, the overview here.

ANTOINE NOTO: Well, higher interest rates, as a result of the Federal Reserve raising them in an attempt to offset inflation and cool the economy, is leading to a boom in personal loan refinancing.

People refinance their revolving rate debt into fixed rate term debt. And so this company is definitely profiting from this trend.

The interest rates we are providing on 2.5% checking and 3% on savings later this week are also a direct result of higher interest rates. We pass on price increases to our other products. And the deposits we receive allow us to do so at a lower cost.

So there are a lot of complementary elements in our business where one feeds the other. We call this the Financial Services Productivity Loop. And that’s what you see playing out in our results.

Anthony, shifting gears just a little. As the former CEO and CFO of Twitter, what’s your take on everything we’ve seen there?

ANTOINE NOTO: I would say, first of all, that I think Twitter has incredible potential. And this potential must be unlocked through the right product innovations.

I think historically the company, from what I’ve seen, has great potential. It has the best content in the world. Regardless of what’s happening in the world, you can see it on Twitter.

The challenge is that the content is there. It is difficult to extract it through the product interface. And there’s always been this challenge of getting a consensus point of view where everyone is on board inside the company or at the board level.

And I think for the first time you have one owner and one leader who can be decisive. And the reason that’s so critical is that you have to iterate at an incredibly fast rate to figure out what kinds of product changes will actually unlock that value.

And that’s really hard to do in a state where there are so many stakeholders having a say. Now there is one who controls the decisions, the consequences and the responsibility. And I think that’s the right form.

Whether it’s the right team, and they’re picking the right things, and they’re executing well, I have no perspective.

What kind of products do you think would work well? Charging $50 to access the platform or for the blue tick, does that make sense?

ANTOINE NOTO: I was having fun with the debate on Twitter, jumping into this conversation. I have lots of ideas on what would work. But it’s not really my position to talk about it. It’s really up to this team to execute the way they see fit.

But I think they should have billions of users, given the content they have so valuable. And they should be valued in the hundreds of billions of dollars, not the tens of billions of dollars, if they can unlock that value.

It looks like we have time for one more. I happened to review your Twitter feed earlier this morning. I know you’re a huge NFL fan. Having held a managerial position there at one point, any predictions for the season?

ANTOINE NOTO: I don’t have any predictions for the season, except that we really love our relationship with Stan Kroenke of the Los Angeles Rams and Dean Spanos of the Los Angeles Chargers.

It was a great partnership with them. It really provided us with the leverage and boost in our brand awareness that we thought it would.

They far exceed our expectations with what they have on site. They have just announced two concerts for Taylor Swift at the end of her tour which will be phenomenal.

We had the Super Bowl last year. The Olympic Games will be there, as well as the World Cup, and this year, the University Football Championship. So I call it the eighth wonder of the world. It’s an iconic platform.

Every artist, sports league, will want to play on this platform. And it was a great partnership that brought us really strong credibility and notoriety. So, I couldn’t be happier with the relationship.

Anthony, I’m excited about Taylor Swift’s new album. Big fan. Big, big, big, big fan. Huge.

ANTOINE NOTO: I’m excited about anything that gets you to cover SoFi Stadium from a media perspective.

Well done, sir.

ANTOINE NOTO: So talk about it as much as possible.

We’re all excited here. I really appreciate your visit. Anthony Noto, CEO of SoFi, and Brian Sozzi of Yahoo Finance. Thanks for that.

About Judith J. George

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