Shares of SoFi Technologies (SOFI) have come roaring back, posting a remarkable 82% gain over the past three months. In comparison, the broader S&P 500 Index ($SPX) managed a 12.8% increase over the same period.
Although the stock recently dipped, despite reporting impressive Q3 earnings, this pullback could be a buying opportunity for investors. SoFi’s stellar financials and shift toward an asset-light business model suggest that this upward momentum will likely continue.
Let's break down the catalysts that could drive SoFi’s growth, and why there may still be room for further gains.
Interest Rate Cuts Are a Key Tailwind for SoFi
One major factor driving SoFi's recent surge is the Federal Reserve’s recent rate cut. A reduction of 0.5% in interest rates has lifted a significant burden for SoFi, whose lending business had been feeling the squeeze of high rates. With the cost of borrowing set to decrease, consumer demand for loans is expected to rise. This improved rate environment positions SoFi to attract new customers, and support accelerated growth across its lending portfolio.
Strong Financial Momentum
SoFi has consistently reported strong quarterly financials, further boosting investor confidence. In Q3, the company achieved a record adjusted net revenue of $689 million, marking 30% year-over-year growth. Financial services, in particular, showed notable progress, now accounting for over a third of total revenue and posting a 102% increase from last year. SoFi's tech platform also grew, with a 14% revenue boost compared to Q3 last year, driven by a growing pipeline of clients looking to modernize their platforms.
Moreover, SoFi’s revenue is diversifying, with non-lending segments now making up 49% of total revenue from 39% a year ago. This shift toward capital-light, fee-based income streams reduces SoFi’s risk exposure and aligns with its long-term growth strategy.
Expanding Customer Base and Product Offerings
SoFi's customer base also continues to grow rapidly. In Q3, the company added 756,000 new members, a 35% increase year-over-year, bringing its total to 9.4 million. Similarly, SoFi’s product offerings rose by over 1 million, up 31% year-over-year, totaling 13.7 million products.
SoFi's cross-selling strategy has been particularly effective. Nearly a third of new products were opened by existing members, while 20% of new members opened a second product within their first 30 days. This behavior underscores SoFi’s success in building an ecosystem that encourages customer loyalty and deepens engagement.
Fee-Based Revenue Growth
A key highlight of SoFi’s business strategy is its focus on capital-light, fee-based revenue streams. In Q3, fee-based revenue totaled $174 million, making up about 25% of SoFi’s adjusted net revenue—a 65% year-over-year increase. This shift has been supported by record growth in SoFi’s loan platform business and higher interchange revenue, which doubled over the past year.
Record Loan Volumes
Despite a challenging environment, SoFi's lending segment achieved record results. The company reported $6.3 billion in total loan volume and $392 million in adjusted net revenue, marking a 14% year-over-year increase. Personal loan volume hit a new high at $4.9 billion, up 26%, including $1 billion originated on behalf of third parties for its Loan Platform Business. Home loans also saw substantial growth, with total volume up 38% and home equity loan volume rising by 44% from the previous quarter.
A Stable, Low-Cost Deposit Base
With deposits totaling $24 billion in Q3, SoFi has built a stable, cost-effective funding source. Notably, nearly 90% of these deposits come from direct deposit customers, who tend to be highly loyal. This solid deposit base enables SoFi to fund a more significant portion of its loan portfolio at a lower cost, which enhances profitability.
Final Thoughts: Why SoFi’s Growth Story Isn’t Over
Wall Street analysts are less than enthusiastic, reflected through a “Hold” rating. However, SoFi’s recent financial performance highlights both the effectiveness of its diversified revenue strategy and its ability to capitalize on improving economic conditions.
The company’s shift toward capital-light, fee-based revenue, strong customer growth, and diversified product offerings are all indicators of sustained momentum. As SoFi continues to attract more members, expand its products, and capitalize on favorable economic shifts, the stock may have more room to climb.
For investors looking for growth in the fintech sector, SoFi presents an exciting opportunity with a proven ability to adapt and grow in all market conditions.
On the date of publication, Amit Singh 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.
