It has been a fairly volatile ride for the one-stop financial services company SoFi Technologies (SOFI -0.69%), which went public through a blank check company and started trading independently in June. Shares of SoFi crossed into the mid-$20s at one point earlier this year before they were formally trading on their own, but have since been beaten down in the broader fintech sell-off. At recent prices, SoFi trades around $15 per share. Can the stock more than double from here and hit $30 per share in 2022? Let's take a look.
The current state of the business
If you asked me to assess the state of SoFi's business, I'd say things are looking pretty good. After a less-than-thrilling second quarter, it rebounded in the third, with a roughly $30 million net loss but strong revenue of roughly $272 million.
SoFi's lending division turned in a stellar quarter, originating more than $3.4 billion of total loan volume, the most the company has originated since 2019. It managed this even though student lending, one of its three main lending categories, remains depressed due to the government halting student loan repayments as a result of the pandemic.
But perhaps more important than pure loan-origination volume is that SoFi's flywheel strategy of selling multiple banking products to customers, thereby reducing customer acquisition costs, seems to be working. Management reported that most of the cross-selling occurred from customers who first entered its ecosystem with a SoFi credit card, cash management account, or online brokerage account. This is SoFi's entire thesis, so it's great to see it working so well.
The other good news is that SoFi continues to grow membership nicely. The company added 377,000 members and now has nearly 3 million overall. Galileo -- SoFi's tech platform that helps fintech companies carry out front- and back-end functions -- added another 10 million accounts in the third quarter and continues to benefit the bottom line.
Lastly, the company continued to grow cash-management, investing, and credit card accounts nicely, which again is how it cross-sells the more-profitable lending products, despite the fact the financial services division is still losing money for the company.
Valuation, however, is where things get tricky when determining if the stock can reach and sustain $30 in 2022. At recent prices around $15, SoFi has a roughly $12 billion market cap. That means if it hits $30 per share, it would have a market cap around $24 billion. This is pretty lofty considering analysts still do not expect SoFi to be profitable next year, even on the high estimates. With analysts on average expecting revenue next year of nearly $1.5 billion, that means SoFi would trade at close to 16 times forward revenue (it's currently close to 9).
In its first investor presentation at the very beginning of the year, management guided for SoFi to have adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $447 million in 2022. However, that assumed the company would have secured the bank charter it will get when it closes on its previously announced acquisition of Golden Pacific Bancorp.
That was supposed to have closed this year, but it's looking less and less likely as the holiday season is here. Large bank mergers have been delayed and fintech-bank acquisitions are still relatively new, so while I still think the deal is likely to go through, I am starting to wonder about the timing and how much of a delay there will be until it closes. Assuming it does close on the deal relatively soon and does the $447 million in EBITDA, SoFi at a $23.6 billion market cap would still trade at more than 52 times EBITDA.
Can SoFi reach $30 in 2022?
Fintechs like SoFi have been getting creamed over the past few months, as investors prepare for higher inflation and multiple interest rate hikes in 2022, as well as the potential for more volatility. I am hopeful the bottom is near, but given how uncertain the outlook is right now and with the potential for tough market conditions next year, I do not think the market is going to award SoFi with such a high valuation, whether it's on revenue or EBITDA multiple.
Perhaps SoFi can reach $30 briefly, but maintaining it will likely be a challenge. I think the stock can have a decent year, and I am optimistic about the business long term, but doubling next year seems like a stretch right now.