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- [00:00]
4imprint Announcer
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- [00:30]
Anthony Noto
Bloomberg Audio Studios Podcasts Radio News so far reporting
- [00:36]
Bloomberg Host
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. Joining us now is so far CEO Anthony Noto. Record revenue and the outlook for the balance of this year is really interesting. Like projects a lot of confidence. Let's just address the stock move and the story of the quarter. You know, maybe the street felt like you needed to take the bottom line with you in your confidence.
- [01:16]
Anthony Noto
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 $1 billion of cash revenue. And our EBITDA margin was 30% and we had 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 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 some 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, you know, market favorability. That will be short, short term beneficial but not long term prudent.
- [02:43]
Bloomberg Host
Right. Let's talk about the Fed. Why not? It's, it's Fed day. No one wants to talk to the tech guy on Fed Day, Anthony, to be honest with you. And I just want to partake in it like everyone else. So you explained it. Your assumption reflects one to two hikes rather than cuts. You know, put the sort of 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?
- [03:11]
Anthony Noto
Yeah. I mean if the Fed is raising rates, that means we have a strong economy. We're trying to maintain stable inflation in an environment in which rates going up 1 to 2% will perform very well on the revenue line, which is why we're still forecasting strong revenue and I think ultimately will 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% which is our long term profile of where we can get to. So 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%, inflation around 2 to 3% is a great backdrop for our business. And even better backdrop for business is if rates were declining.
- [04:01]
Bloomberg Host
Final question on the economic side, you know, what is the health of your customer look like? And not just the health, but like what are the behaviors of your customers in this environment? We've gone over in the past, you and I, the demographics and, and who you're serving. So, so how are they behaving?
- [04:17]
Anthony Noto
The customers behavior is very strong. We see very strong levels of spending. We annualize that about $30 billion of debit spending a year. We're seeing very strong trends in credit which we 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, 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. So. And we recently launched small medium business and we see a lot of demand for small medium business loans. As well. So from our vantage point, the economy looks very strong. Inflation isn't causing consumers to hold back. We're not seeing an uptick in unemployment. Right. We're not seeing inflation any deviation on the credit side.
- [05:11]
Bloomberg Host
Let's talk about when we went through the big bank earnings, this debate, right, on how much AI is really reshaping financial services and the investment that's required for so far today. Where is AI having an impact, you know, across underwriting, customer service, fraud detection, something that's real right now?
- [05:31]
Anthony Noto
Yeah. The first thing where it's having an impact is actually on code production. We have a unit of work within our engineering group called a squad. And historically a squad consists of seven people. Today a squad is going to consist of four people that can produce the same amount of code as seven people. So that's a huge productivity savings from AI capabilities. It also helps with testing. On the cost side of the equation, we're using it to automate fraud investigations, we're using it to automate dispute resolutions, we're using it to help with customer service. On the underwriting side, we're not really using it to predict the ability for people to pay because we underwrite to their actual cash flow based on their actual income and their expenses. I do think that AI is helpful in verifying some potential outliers or finding them that could be fraudulent activity. First party fraud where an individual has no intent to repay their obligations. And then on the overall value prop of SoFi side of the equation, we've launched something called SoFi Coach which is a chat bot that's driven all by AI. You can ask any question about your financial life and it will help you get your money right. You can ask if you refinance your mortgage, where you should invest, how do you lower your costs and your expenses, should you be investing more? And it's a super powerful engine based on the data that we uniquely have. Because we're a one stop shop. We have data across checking and savings accounts, across loans, across mortgages, across investing, across credit cards and across insurance. So we have not just a great engine of information that can drive great AI solutions, but the data is a huge differentiator and we're seeing really positive effects of that.
- [07:10]
4imprint Announcer
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