SoFi Technologies (NASDAQ: SOFI) recently released its third quarter results and continues to grow at an impressive rate. In this fool live Video clip, recorded on November 11Fool.com contributor Jason Hall discusses the results and what investors need to keep in mind about this fintech disruptor.
Jason Hall: This is a business that does banking, investing, lending – personal financial services. It absolutely grows to a very high clip. Added 377,000 new members during the quarter, the second highest number of new members in its history, and as you can see, sequentially growing continuously and almost doubling the total number of members year over year . Continues to attract new users, these users continue to use more of its products. Again, just under 3 million members. These members use nearly 4.3 million products. Again, more than doubled.
One of the things I want to point out is that you see these payoff percentages among new members here. The percentage of earnings in products generally increases at a higher rate. This is optimal because it means that people not only come to SoFi for something, but they come to SoFi for something and then they add more stuff. I think it’s absolutely fantastic. He bought Galileo about a year ago, I guess, Galileo continues to grow at a very high rate, 89 million Galileo accounts.
Loans and financial services. Looking at the two different parts of its business, comparing it to a more traditional commercial bank, I guess that’s a good way to think about it. Loan products continue to grow in the mid teens while the growth of financial services products increases to triple digits. Now you go back and we’re talking about 600%, almost 500%, 300%, only 180% growth. But the bottom line is that it’s reaching millions at this point, going from hundreds of thousands to millions now. The growth rate may be slowing, but the number of products used, in actual numbers, is actually more than it was.
As I said, the second highest number of new clients ever added during the quarter. Again, in the middle of adolescence. You might be wondering, teens, come on, what’s going on here? To concern Reached, it is growing at much higher rates. A number of things. This is not a start from the low base from which a business like Upstart grows. I also think this is indicative of risk management. They underwrite risk, manage the risks that come with being a lender, and effectively lend and manage that risk.
A million different loan products, 1 million loans issued, I guess that’s the best way to think of that number. I want to jump over here. Do you see that, the income statement? But I just want to touch a few points on this. I’m going to look at the nine-month numbers here. Total interest income for the nine months, $ 260 million. It’s actually just down a bit from the first nine months of last year. Now, one thing that has changed is that his interest charges have dropped dramatically.
This is really important because the other side of being a good lender, beyond managing your credit risk and making sure you are lending appropriately is how much it costs you to get this capital, and their capital costs have decreased significantly over the year-to-year period. Net interest income is actually on the rise, which is right here, which is absolutely huge. Now the non-interest income, all the fees they earn for originating loans, selling loans, other fees they earn are up substantially. Non-interest income more than doubled, which has been a major driver of the increase in that income. This income corresponds to all of its interest income and other than its interest expense.
Then you have non-interest charges, which is operating costs. This number is increasing at a very high rate. Non-interest expense was over $ 1 billion in the quarter or first nine months, compared to $ 635 million year-over-year. increase there, and its operating expenses go up, just because it’s a bigger and bigger business. These expenses are increasing. I hope I don’t make anyone dizzy. Where is he here? I think this should be the next one here, cash flow? Again, left here you have this nine month period. Consumption of operating cash is actually declining. It is a sign of a business that is becoming more efficient.
All this scale, all these new products that members are using, all these new loans that she is giving. Last year, for the first nine months, it spent almost $ 500 million in operating cash. In the first nine months of this year, approximately $ 114 million in operating cash consumption. This is the time that SoFi must invest, spend more on operations, develop its products, make acquisitions on which it can rely to extend the services it offers. I’m not worried that cash consumption will continue as now is the time for the business to scale up, where the benefits of being at scale mean better operating leverage, higher returns , and this is the kind of business that needs to be scaled up. Again, as long as they stay disciplined with their loan quality and really focus on making a good underwriting, it can be very profitable.
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