Valued at $7.9 billion by market cap, SoFi Technologies (SOFI) operates a digital financial services platform. Over the years, the company has expanded its portfolio of products and services so that users can borrow, save, and invest their money.
SoFi also operates Galileo, an enterprise-facing tech platform, and Technisys, a digital and core banking platform. Finally, to target the fully digital customer, SoFi provides solutions such as a mobile-first investment platform, a personal finance management product, and online insurance.
SoFi stock went public in late 2020, and currently trades down 70% from all-time highs, trailing the broader markets by a wide margin. Let’s see if the fintech stock is a buy ahead of this month's upcoming Fed meeting.
A Strong Performance in Q2 of 2024
SoFi is an asset-light digital bank with no physical branches, providing an end-to-end digital experience to customers. In Q2 of 2024, SoFi increased its members by 41% year over year to 8.8 million, while adjusted net revenue rose 20% year over year.
In the June quarter, SoFi reported adjusted net sales of $587 million, up from $485 million in the year-ago period. The company's focus on diversification allowed it to report record revenue in Q2, as lending sales increased by just 5% year over year. Alternatively, Financial Services and Tech Platform sales rose 46%, accounting for 45% of net revenue, up 38% from last year. At the same time, lending sales, which are cyclical, accounted for 57% of net revenue, down from 70% two years ago.
Its asset-light model allows SoFi to benefit from operating leverage and grow profit margins much faster than sales. In Q2, SoFi’s EBITDA (earnings before interest, tax, depreciation, and amortization) rose 80% year over year to $138 million. Additionally, it reported its third consecutive quarter of GAAP (generally accepted accounting principles) profitability, with a net income of $17 million comparing quite favorably to a loss of $40 million last year.
A Focus on Credit Performance and Brand Building
SoFi’s credit performance in Q2 was better than expected, as fair-value adjustments from delinquent loans peaked in March. The company continues to focus on stringent underwriting, limiting credit exposure, and improving collections. Further, its loan sales are scaling rapidly, as total sales rose to $1.6 billion in Q2 and $4.7 billion over the last nine months.
The fintech platform's brand-building efforts are fueling membership growth, as it added 643,000 members in Q2. The two key drivers for SoFi’s revenue growth will be the increase in the number of members and the number of products. In Q2, the number of products grew by 946,000 to 12.8 million, up 43% year over year. Around 40% of new products in Q2 were opened by existing SoFi customers, which showcases strong engagement levels.
In the last two years, SoFi has doubled its member base and the number of products. In fact, June was the 20th consecutive quarter where SoFi grew these numbers by at least 30% annually.
Is SoFi Stock a Good Buy Right Now?
Out of the 18 analysts covering SoFi, four recommend a “strong buy,” one recommends a “moderate buy,” ten recommend a “hold,” and three recommend a “strong sell,” for an overall consensus of “hold.” The average target price for SOFI stock is $8.89, 18.9% higher than the current trading price.
SoFi has successfully expanded its business lines, but the lending business still generates over 50% of its sales. This means that SoFi’s lending business should gain momentum if interest rates move lower in the next 12 months - a process that's widely expected to start with this month's Fed meeting.
The company is now reporting consistent profits, and is forecast to end 2025 with adjusted earnings per share of $0.26, compared to a loss of $0.36 per share in 2024. So, priced at 29 times forward adjusted earnings, SOFI stock is relatively cheap, given its solid growth.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
