SoFi CEO Anthony Noto Talks Record Revenue, Earnings Caution

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Ed Ludlow** (0:07)
SoFi, reporting second quarter results before the opening bell. The company posted record revenue, $1.2 billion, but also raised its full year revenue outlook. The bit that's unchanged is the earnings guidance. Look at shares, down 8.4% right now, on track as it stands for its biggest drop since late April. There had been a deeper decline earlier in the session, and joining us now is SoFi CEO, Anthony Noto.
Record revenue and the outlook for the balance of this year, it's really interesting, like projects a lot of confidence. Let's just address the stock move and the story of the quarter. Maybe the street felt like you needed to take the bottom line with you in your confidence.

**Anthony Noto** (0:48)
Yeah, I think you're right. The quarter was incredibly strong. It was our 19th consecutive quarter of more than a rule of 40 It was actually a rule of 70, with 40% revenue growth to $1.2 billion and over a billion dollars of cash revenue. And our EBITDA margin was 30%, and we had a really strong net income margin. I think the street likes the trend in the business today. Credits performed well. Our new products are getting great adoption. We're seeing the flywheel of being a one-stop shop, driving success and increased products per member.
So really positive story fundamentally in Q2.
In Q3, we expect that fundamental story to remain intact and continue strong member growth, product growth and product per member growth with good profitability. We did raise our revenue expectations for the year and the back half of the year, but we left earnings unchanged primarily because we want to make sure that we keep investing in the business to maintain these high levels of revenue growth for a longer period of time. And in addition to that, we're also now anticipating two rate increases, as opposed to the beginning of the year when we anticipate two rate decreases. And that creates some uncertainty, and so we decided to have a little bit of a cushion as it relates to earnings if something like that unfolds. But we couldn't be more confident in the business and the long-term profitability of the business. It's just we're not going to take earnings up in the near term to try to drive market favorability that will be short-term beneficial, but not long-term prudent.

**Ed Ludlow** (2:16)
Right. Let's talk about the Fed. Why not? It's Fed Day. No one wants to talk to the tech guy on Fed Day, Anthony, to be honest with you. I just want to partake in it like everyone else. You explained it. Your assumption reflects one to two hikes rather than cuts.
Put the numbers and monetary policy jargon to one side. How does that change how you think about the world, about how the economy grows, about the consumer in the back half of this year?

**Anthony Noto** (2:44)
Yeah. If the Fed is raising rates, that means we have a strong economy and we're trying to maintain stable inflation.
In an environment which rates going up one to two percent, we'll perform very well on the revenue line, which is why we're still forecasting strong revenue. I think ultimately we'll perform really well on the bottom line. We're already in our guidance in providing guidance of a net income margin on an incremental basis of 30 percent, which is our long-term profile where we can get to. It doesn't really change that much. It just eliminates some of the upside that one may have called today compared to a different environment.
I think a stable economy with unemployment below 5 percent, inflation around 2 to 3 percent is a great backdrop for our business. An even better backdrop for our business is if rates were declining.

**Ed Ludlow** (3:34)
Final question on the economic side.
What does the health of your customer look like? And not just the health, but what are the behaviors of your customers in this environment? We've gone over in the past, you and I, the demographics and who you're serving. So how are they behaving?

**Anthony Noto** (3:50)
The customer's behavior is very strong. We see very strong levels of spending. We annualize at about $30 billion of debit spending a year. We're seeing very strong trends in credit, which were reported continuing. We're seeing good inflows into our invest business assets under management standpoint, and we're seeing people take out more products. There definitely is a desire to reduce the cost of debt, and we saw record levels of origination across our unsecured personal loans, our student loan refinancing, and our home equity lines of credit and home equity loans. And that's a secured loan that has a lower interest rate.