Qifu Technology (QFIN) Q1 2025: Share Count Drops 11% as AI-Driven Take Rate Rises
Qifu Technology’s first quarter saw a strategic pivot toward AI-powered credit and aggressive capital return, with a sharply higher take rate and a significant 11% reduction in share count. Stable asset quality and disciplined risk management allowed the company to expand its embedded finance and technology solutions, even as macro uncertainty and trade tensions persist. Management signals continued buybacks and prudent growth, leveraging a diversified funding mix and operational AI transformation to navigate a complex regulatory and economic environment.
Summary
- AI Transformation Accelerates: Qifu is rapidly deploying AI agents across risk, operations, and user acquisition to boost efficiency and credit decisioning.
- Capital Return Takes Center Stage: Share repurchases now target an 11% reduction in share count for 2025, supported by convertible notes and strong cash flow.
- Risk Management Remains Tight: Stable delinquency metrics and flexible asset allocation underpin a cautious but opportunistic growth stance.
Performance Analysis
Qifu Technology delivered robust top-line growth and margin expansion in Q1 2025, with total revenue rising both sequentially and year-over-year. The company’s take rate climbed to 5.7%, up 2.2 percentage points YoY, reflecting improved operational efficiency and a greater mix of high-value, AI-driven services. Platform service revenue—comprising 56% of the loan balance—continued to grow, fueled by embedded finance and technology partnerships, while capital-heavy credit-driven services also expanded as funding costs declined.
Asset quality indicators remained stable, with the C-M2 delinquency ratio at 0.6% and a provision coverage ratio at a record 666%. The company’s blended average IRR on originated or facilitated loans held steady at 21.4%, and funding costs benefited from a 25% YoY increase in ABS issuance. Cash flow from operations was strong, and the company’s share repurchase program, funded by a $690 million convertible note, drove a sharp reduction in share count, immediately accretive to per-share earnings.
- Take Rate Expansion: AI-driven process improvements and product mix shifts drove a substantial increase in take rate, outpacing loan growth.
- Embedded Finance Surge: Loan volume from embedded channels more than doubled YoY, signaling traction in strategic partnerships.
- Share Buyback Acceleration: Over $405 million in repurchases YTD, with a total target of $680 million for 2025, supports EPS accretion.
Despite a 9% sequential drop in new credit line users, conversion efficiency improved, and unit acquisition costs rose due to channel mix and higher-quality user targeting. Management’s focus on risk-adjusted growth and capital return was evident in both operational and financial execution.
Executive Commentary
"At the start of this year, we began rolling out our AI plus credit strategy at scale aimed at building the industry's first AI agent platform to empower core credit processes. We plan to recruit an additional 100 algorithm engineers by the end of the year and accelerate our transformation into an AI native organization."
Wu Haisheng, CEO
"Altogether, so far in 2025, we brought back approximately 9.6 million ADS for a total amount of $405 million, including commissions, at an average price of 42.3 per ADS. The accelerated pace of share repurchase further demonstrates management confidence and commitment to the future of the company."
Alex Xu, CFO
Strategic Positioning
1. AI-Native Credit Platform
Qifu is aggressively embedding AI agents across the credit value chain, from credit decisioning to user profiling and risk management. The company’s Chat BI agent and multimodal data mining are improving both the precision of underwriting and the efficiency of business analysis. This AI-first approach is not only enhancing operational scalability but also enabling dynamic strategy optimization in real time.
2. Embedded Finance and Tech Solutions
Embedded finance, partnerships with internet platforms, and Focus Pro for SME lending are unlocking new growth vectors. Embedded channel loan volume surged 106% YoY, and new credit users from these channels grew 36%. The technology solutions business, powered by the Focus Pro platform, saw loan volumes up 144% YoY, with new municipal bank partnerships expanding Qifu’s reach and recurring revenue streams.
3. Disciplined Capital Allocation
Capital return is a top priority, with a multi-pronged approach: convertible note issuance, record share repurchases, and a cash-par settlement structure to minimize dilution. Management expects total share count to fall by 11% in 2025, driving significant EPS accretion and reinforcing shareholder alignment.
4. Regulatory Alignment and Risk Flexibility
Recent regulatory guidance from China’s NFRA validates Qifu’s facilitation model, favoring platforms with risk-sharing and compliance capabilities. Qifu’s diversified business model allows for rapid adjustment between asset-heavy and asset-light modes, maintaining flexibility as macro and policy conditions evolve.
Key Considerations
The quarter’s results reflect a company balancing innovation, risk, and capital discipline, while navigating a complex macro and regulatory backdrop. The following considerations are critical for investors assessing Qifu’s trajectory:
Key Considerations:
- AI as Competitive Moat: In-house AI agent deployment is driving operational leverage and underwriting precision, positioning Qifu ahead in digital credit transformation.
- Funding Structure Optimization: Growing ABS issuance and declining funding costs enhance margin resilience, even as macro volatility persists.
- Customer Acquisition Efficiency: Despite higher unit costs, conversion rates from new users to borrowers improved to 74%, up sharply YoY, reflecting better targeting and channel mix.
- Regulatory Tailwinds: New NFRA rules are expected to consolidate the sector and benefit compliant, scale players like Qifu, reducing competitive intensity.
- Capital Return Commitment: Accelerated buybacks and prudent capital allocation are delivering immediate EPS benefits and signaling management’s confidence.
Risks
Macroeconomic uncertainty and global trade volatility remain persistent risks, with potential to dampen consumer credit demand and impact asset quality. While regulatory changes are currently favorable, future policy shifts or stricter enforcement could alter the competitive landscape. Delinquency metrics and acquisition costs warrant close monitoring, as shifts in channel mix or borrower quality could pressure margins if not offset by AI-driven efficiency gains.
Forward Outlook
For Q2 2025, Qifu guided to:
- Non-GAAP net income between RMB 1.75 billion and RMB 1.85 billion, representing 24% to 31% YoY growth.
For full-year 2025, management maintained a prudent outlook:
- Loan volume growth expectations unchanged from the start of the year, with risk metrics expected to remain stable.
Management highlighted:
- Continued focus on operational efficiency and capital allocation to support both growth and shareholder returns.
- Flexibility to adjust risk and acquisition strategies dynamically as macro conditions evolve.
Takeaways
Qifu is executing on an AI-driven transformation, with strong capital return and operational discipline underpinning its growth narrative. The company’s diversified business model and regulatory alignment provide a buffer against external shocks, while embedded finance and technology solutions offer new growth levers.
- AI-Driven Take Rate and Margin Upside: Technology investments are translating into higher take rates and underwriting efficiency, supporting margin expansion even in a volatile macro environment.
- Capital Return as a Strategic Anchor: Share buybacks and prudent capital management are driving immediate per-share value, with an 11% share count reduction targeted for 2025.
- Macro and Regulatory Vigilance Remain Critical: Investors should monitor delinquency trends, funding cost trajectory, and regulatory developments as key variables for future quarters.
Conclusion
Qifu Technology’s Q1 2025 results highlight a business in transition—leveraging AI, embedded finance, and disciplined capital return to drive value in a complex environment. The company’s ability to sustain growth, manage risk, and return capital positions it well, but vigilance on macro and operational fronts remains essential.
Industry Read-Through
The rapid adoption of AI agents in credit decisioning and risk management at Qifu signals an industry shift toward automation and data-driven underwriting, raising the bar for operational efficiency across digital lending. Regulatory moves favoring compliant, risk-sharing platforms are likely to accelerate consolidation in China’s consumer credit and fintech sectors, with scale players positioned to benefit. Capital allocation discipline and diversified funding strategies are emerging as key differentiators, with implications for fintechs and traditional lenders navigating similar macro and regulatory headwinds.