Investor interest in fintech stocks remains high, as artificial intelligence (AI) opens up new growth opportunities for all industries. While most fintech stocks - like PayPal (PYPL) and Block (SQ) - got clobbered in 2023 due to rising interest rates, shares of SoFi Technologies (SOFI) have surged 65% year-to-date, outperforming the S&P 500 Index's ($SPX) gain of 18.7%.
Founded in 2011, SoFi initially established its foothold in student loan refinancing. However, the company swiftly expanded its portfolio to include personal loans, mortgage lending, investment management, insurance, banking, and even cryptocurrency trading.
SoFi reported some encouraging numbers in its third quarter, indicating a path to profitability, and the shares rallied in response. Furthermore, the resumption of student loan payments may result in additional growth for the company going forward. Even Jim Cramer, the host of CNBC's Mad Money, advises investors to "stay long" on SOFI.
Let's look at why this fintech growth stock is a good buy-and-hold right now.
Solid Q3 Results, Despite Challenging Times
SoFi’s success so far can be attributed to its commitment to innovation. It offers a seamless digital platform that simplifies financial management. SoFi’s user-friendly tools and interfaces, as well as mobile applications, set it apart by creating an accessible and engaging experience for its members, resulting in an increased membership.
On Nov. 27, talking about SoFi in a “Lightning Round” on CNBC, Jim Cramer stated that he is a buyer of SOFI and believes CEO Anthony Noto is doing a good job. Looking at SoFi's most recent quarterly results, I agree.
In the third quarter, SoFi added 1.047 million products, bringing the total number of products to 10.4 million. Additionally, by adding 717,000 new members in the quarter, SoFi recorded an uptick of 47% year-over-year to 6.9 million total members. The strong customer base brought in a 27% increase in adjusted revenue to $531 million.
Notably, SoFi operates through three business segments: Lending, Technology Platform, and Financial Services. While all three segments reported strong growth in the quarter, the non-Lending segments contributed 67% to the total increase in adjusted revenue.
Particularly, the Financial Services segment - which provides services such as checking and savings accounts, debit cards, and cash management products - grew a whopping 142% year-over-year.
Driven by a strong Q3, management forecasts adjusted net revenue in the range of $2.04 billion to $2.06 billion for the full year.
SoFi Is on the Path to Profitability
SoFi's adaptability and agility have been critical to its success. For instance, the company quickly recognized the growing interest in digital assets. As a result, SoFi embraced cryptocurrency trading, enabling its users to trade major cryptocurrencies like Bitcoin (BTCUSD) and Ethereum (ETHUSD) through its platform.
However, due to rising scrutiny from banking regulators, SoFi made an important announcement on Nov. 29 for its crypto customers. It reached an agreement with Blockchain.com under which all U.S. users with SoFi crypto accounts will be required to migrate to Blockchain.com's platform.
Furthermore, after a three-year-long pause in student loan payments, federal loan payments resumed in October of this year. This could increase the company's refinancing activity, bringing it closer to profitability. Plus, to improve its products and services, SoFi has also integrated AI into its offerings.
While SoFi's revenue and membership are on the rise, the company's bottom line is still red. The good news is that the company is working tirelessly to reduce its losses. In Q3, the loss per share stood at $0.03, versus a loss of $0.09 per share in the year-ago quarter. Also, SoFi reported a 121% increase in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to $98 million from the prior year.
Management is optimistic about achieving GAAP (generally accepted accounting principles) profitability in the fourth quarter of 2023. However, analysts expect SoFi to report a loss of $0.01 per share in Q4. For the full year, analysts predict revenue growth of 33% to $2.05 billion, with a loss of around $0.34 per share.
Longer term, analysts predict SoFi will see green in its bottom line by the end of 2024. An outstanding projected 24% year-on-year growth in revenue to $2.5 billion could be a driving factor behind profitability in 2024.
What Is Wall Street’s View on SOFI?
Recently, Piper Sandler analyst Kevin Barker reiterated his “hold” rating for SOFI, along with a target price of $8.50. The analyst believes that while student loan refinancing will drive revenue, SoFi should focus on controlling costs to boost earnings.
Overall, Wall Street rates SOFI a “hold.” Out of the 18 analysts covering SOFI, five have a “strong buy” recommendation, 11 suggest a “hold,” and two recommend a “strong sell.” Based on analysts' average price target of $9.31, Wall Street sees a potential upside of about 24% over the next 12 months.
Priced at 2.7 times forward sales, SoFi seems like a fairly valued growth stock based on its 2024 revenue growth forecasts.
The Verdict
SoFi's adaptability to changing finance trends, innovation, and unwavering focus on customer satisfaction highlight its resilience. While SOFI stock is a “hold” in the analyst community, I believe the stock is a reasonable buy at current levels, based on its growth potential. Once macroeconomic headwinds subside, and now that student refinancing opportunity is up and running again, there is a high likelihood this fintech stock will be profitable by the next fiscal year.
On the date of publication, Sushree Mohanty 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.
