Shares of Yiren Digital Ltd (YRD) plummeted 25.78% in pre-market trading on Thursday after the China-based fintech company reported disappointing fourth-quarter results and provided a cautious outlook for 2025.

The company reported a sharp decline in profits for Q4 2024 despite revenue growth. Net income fell 42% year-over-year to RMB 331.4 million (US$45.4 million), while total net revenue increased 14% to RMB 1,452.2 million (US$199.0 million). Adjusted EBITDA also saw a significant drop, falling to RMB 313.9 million (US$43.0 million) from RMB 684.8 million in Q4 2023.

Several factors contributed to the profit decline and subsequent stock sell-off:

1. Increased provisions: Provision for contingent liabilities surged to RMB 250.7 million in Q4 2024, compared to a reversal of RMB 1.5 million in the same period of 2023. The company cited a growing volume of loans facilitated under its risk-taking model as the reason for this increase.

2. Higher operating expenses: Allowance for contract assets, receivables and others more than doubled to RMB 203.1 million, reflecting a prudent approach to future market uncertainties.

3. Disappointing outlook: Yiren Digital provided a cautious outlook for 2025, projecting total revenue between RMB 5.5 billion to RMB 6.5 billion. This guidance suggests potential for flat or minimal growth compared to the 2024 revenue of RMB 5.8 billion, falling short of market expectations.

4. Regulatory challenges: The company's insurance brokerage business faced headwinds, with revenue from this segment declining 57.6% year-over-year in 2024 due to ongoing impacts from regulatory changes.

While Yiren Digital highlighted positive developments, such as growth in its financial services business and advancements in AI technology, investors appear concerned about the company's profitability and growth trajectory in the face of regulatory and market challenges.