Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: So fine out with earnings that well look strong today,
Speaker 2: but the forecast is what people are worrying about. The
Speaker 2: shares falling after the fintech company provided second quarter nuance
Speaker 2: here with adjusted net revenue and adjusted ebit DA that
Speaker 2: perhaps fell short of some consensussessments out there. We want
Speaker 2: to dig into that nuance with SOFI CEO Anthony Noto.
Speaker 2: Thank you for joining us, Anthony, And look, we've got
Speaker 2: to focus on the fact that your full year guidance
Speaker 2: was raised. You're feeling positive about the way in which
Speaker 2: you're steering the company. You say you're in an inflection point.
Speaker 2: But why the second quarter being below expectations? What can
Speaker 2: you add to what you're seeing here right here, right now.
Speaker 3: Get we had a great first quarter, as we reported
Speaker 3: twenty six percent year of year of growth, and it's
Speaker 3: in line with the transformation that we talked about, which
Speaker 3: is our combined tech platform business and our financial services
Speaker 3: business would grow.
Speaker 1: Fifty percent or more.
Speaker 3: It grew fifty four percent year of year and that
Speaker 3: combined with flat revenue for lending, and that was part
Speaker 3: of the plan. And we had our second consecutive quarter
Speaker 3: of gap positive EPs. In addition to growing our book
Speaker 3: value on a tangible basis per share by about sixteen
Speaker 3: percent sequentially, we also guided the full year, as you
Speaker 3: mentioned above, not just our beat, but also above our
Speaker 3: prior guidance, so that's a positive overall outlook.
Speaker 1: We had not given Q two guidance before.
Speaker 3: We typically give the full year and then the current
Speaker 3: quarter that we're in, so at the end of twenty
Speaker 3: four we gave guidance for the full.
Speaker 1: Year and Q one, not Q two.
Speaker 3: The analysts atarted using their own estimates for that and
Speaker 3: because we're taking a conservative you on lending, lending will
Speaker 3: be down sequentially in Q two, while our tech platform
Speaker 3: revenue and our financial services revenue will continue to have
Speaker 3: strong year year growth, but also strong sequential growth and
Speaker 3: continue profitability as well.
Speaker 1: So we feel really.
Speaker 3: Great about the business and the transformation we've made over
Speaker 3: the last six years. The fact that we can grow
Speaker 3: revenue twenty six percent on flat lending revenue real testament
Speaker 3: to the diversity of our business.
Speaker 2: Hey Darson, you can't feel great about the share reaction.
Speaker 3: You know, any given day, it's hard to predict what's
Speaker 3: going to happen with the shriffes. But what I can
Speaker 3: say is the business is doing incredibly well, the strategy
Speaker 3: is working, and we're really happy about the trend we do.
Speaker 3: We are taking a conservative you on lending, but that's
Speaker 3: given how uncertain the environment is. If the environment becomes
Speaker 3: more stable, we'll be more aggressive on lending, but right
Speaker 3: now there's no need to and the environment remains as
Speaker 3: uncertain as it has for the last six months.
Speaker 4: On rates, Misster noto, good morning, It's Edin San Francisco.
Speaker 4: A lot of the questions I got from our audience
Speaker 4: for you were about the capital you raise and your
Speaker 4: strategy going forward. There was convertible in one queue, a
Speaker 4: lot of interest in that. I actually am not clear why,
Speaker 4: but the people want to know, so that's the question.
Speaker 3: Yeah, I think people misunderstand the share count. First, we
Speaker 3: did two things in Q one. First, we issued a
Speaker 3: convertible note at one point two five percent interest that
Speaker 3: allowed us to redeem a preferred security that we're paying
Speaker 3: twelve and a half percent interest on. So that is
Speaker 3: going to provide an interest savings for us, and we've
Speaker 3: already noticed all of the holders of that preferred instrument,
Speaker 3: and so that's being redeemed sooner than expected. We also
Speaker 3: bought back an existing convert that was trading well below
Speaker 3: its face value, and that was a creative to book
Speaker 3: value and it was basically neutral on tangible book value
Speaker 3: per share. So there's some perception that it was diluted.
Speaker 3: It's not diluted on a tangible book value per share.
Speaker 3: And I think there's just a misunderstanding on what the
Speaker 3: total ending share count will be in the future.
Speaker 4: My colleague at Bloomberg Intelligence, Herman Chan, has a very
Speaker 4: clear thesis for you guys. You have a brilliant app,
Speaker 4: strong user interface, one stop shop, and you're targeting young professionals.
Speaker 1: That's what they think.
Speaker 4: But the story really is this higher interest rates for
Speaker 4: longer environment narrative. How does that thesis work in that
Speaker 4: rate environment?
Speaker 3: Anthony, Yeah, Well, first of all, your colleagues said it
Speaker 3: very well, and so we should consider having them being
Speaker 3: one of our spokespeople. But I'd say is higher for
Speaker 3: longer is going to create challenges for financial institutions.
Speaker 1: We are very well capitalized.
Speaker 3: We have a seventeen point one percent risk based capital ratio,
Speaker 3: so we have ample cushion or capital ratio relative to
Speaker 3: where we have to operate from a regulatory standpoint, and
Speaker 3: we have plenty of liquidity. That said, as we saw
Speaker 3: today another regional bank was very challenged. We're also benefiting
Speaker 3: from really strong deposit growth. We had our record growth
Speaker 3: and deposits three billion dollars of new deposits and ninety
Speaker 3: percent of our deposits are from direct deposit customers, which
Speaker 3: means we're their primary account and it's very very sticky,
Speaker 3: but higher for longer. We'll put stress on other people's
Speaker 3: balance sheets if they're not hedging.
Speaker 1: Appropriately the way we do.
Speaker 3: We hedge our loans once we grant them, so we
Speaker 3: don't have that interest rate exposure. We can also match
Speaker 3: what we're giving it as an apy to our SOFI
Speaker 3: money member against the loans that we're offering in the
Speaker 3: rates that they have to maintain a very high NIM
Speaker 3: and we've been able to do that consistently. In addition
Speaker 3: to that, we also the tech platform business, which is
Speaker 3: not tied to interest rates. And then in the financial
Speaker 3: services business, we have the invest platform that's growing very nicely,
Speaker 3: good aum growth, good member growth, and another source of
Speaker 3: diverisfied revenue for US.
Speaker 2: Where technology show we want to go into the specifics
Speaker 2: of your technology, Anthony, but I want to bring our
Speaker 2: audience that macro flavor that you so brilliantly give, because
Speaker 2: why are you more cautious on the US economy? Why
Speaker 2: are you seeing five percent excess of unemployment? Why are
Speaker 2: you seeing these interest rate cuts that you've now basically
Speaker 2: halved in your expectations for twenty twenty four.
Speaker 3: Yeah, our balance sheet has grown quite meaningfully. It's about
Speaker 3: a thirty billion dollars bounce sheet now. So as we
Speaker 3: came into twenty twenty four, we had a choice. Could
Speaker 3: we come up with our own expectations for twenty twenty four?
Speaker 3: Could we use consensus expectation. Let's just take up planning
Speaker 3: stanch that's really conservative. And the planning stance that we
Speaker 3: took then was that there would only be four rate cuts.
Speaker 3: The market was factoring in six rate cuts at the time.
Speaker 3: We also took up planning stance on unemployment that would
Speaker 3: be more than five percent, the market was well below that.
Speaker 3: And we also took a stance on GDP contraction that
Speaker 3: was modest. Well, here we sit today three months later,
Speaker 3: and the market's only factoring in one to two rate cuts.
Speaker 1: So I'm really thankful we took a conservative.
Speaker 3: Stance going into the year, and I'm really thankful we
Speaker 3: still have a conservative stance. I couldn't feel better about
Speaker 3: the underlying trends of our strategy and execution of our business.
Speaker 1: But I don't think we're an.
Speaker 3: Environment where anyone has a really strong high conviction level
Speaker 3: and where rates will be.
Speaker 1: There's still a debate whether it be any rate cuts whatsoever.
Speaker 3: So we just can't put the business at risk hoping
Speaker 3: that we can figure it out.
Speaker 1: So we're going to a conservative point of view.
Speaker 4: But with short time, anthy, you're moving away from this
Speaker 4: kind of trademark student loans and REFI business.
Speaker 3: Why Well, the strategy when I came in twenty eighteen
Speaker 3: was to create a once stop shop for all your
Speaker 3: fincial services needs. There was no one providing all the
Speaker 3: products that you need for the big moments in your
Speaker 3: life and all the days in between.
Speaker 1: So we offer home.
Speaker 3: Loans, student loans, personal loans, in school loans, checking and
Speaker 3: savings called SOFI, money investing insurance, small meat and business
Speaker 3: loan lead generation in addition to the tech platform business.
Speaker 3: So the strategy was always about building a one stop
Speaker 3: shop for all your financial services needs, and that's actually
Speaker 3: resulted in diversified business that allows us to make choices
Speaker 3: on what we grow versus what we take.
Speaker 1: A conservative view
Speaker 4: On SOFI CEO Anthony Notto, great catch up, great heavy
Speaker 4: back on the program.