Shares of SoFi (SOFI -0.56%) have been volatile since recently reporting fourth-quarter earnings for 2021. The stock soared some 18% in after-hours trading immediately following the earnings report but then gave up those gains on some mixed reviews from analysts and some market volatility due to the turmoil amid Russia's invasion of Ukraine.
While I thought SoFi had a strong quarter, I've been back and forth on the forward guidance SoFi provided. On one hand, it's higher than analysts had initially been forecasting, but it's also lumpy and there are a lot of new things happening at SoFi. Is SoFi's outlook for 2022 really that strong? Let's take a look.
Examining the guidance
SoFi finished 2021 strong with adjusted net revenue; adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA); and EBITDA margins all at the high end of management's prior projections for the year. Here is the guidance management gave for the first quarter of this year and for the full year of 2022.
| Guidance | Q1 2022 (millions) | YOY Increase | Full Year 2022 | YOY Increase |
|---|---|---|---|---|
| Adjusted revenue | $280-$285 | 30%-32% | $1.57 billion | 55% |
| Adjusted EBITDA | $0-$5 | 0-2% | $180 million | 500% |
Source: Company earnings materials
The projections suggests significant growth, with revenue rising 55% and adjusted EBITDA up 500% from 2021. However, given Q1 guidance, it's clear that the bulk of revenue and EBITDA is expected to come later this year. (I'll explain why management is assuming this later.) The forecast is undoubtedly impressive, but the market has already been pricing SoFi to reflect a lot of this growth.
SOFI PS Ratio (Forward) data by YCharts.
On a revenue basis, SoFi may look cheap, but revenue multiples are no longer as relevant in this kind of market, especially with many investors thinking there could be a recession later this year. SoFi has a very high estimated value-to-EBITDA ratio, and because SoFi is also now a bank, investors can also look at it on a price-to-tangible book value basis, which reflects a bank's market cap relative to its net worth. Innovative banks can certainly trade above 300% of tangible book value, but that is at the high end of the industry.
Image source: Getty Images.
What to make of the guidance
Before earnings, analysts on average had expected SoFi to generate roughly $1.45 billion of revenue and $157 million of EBITDA in 2022, so guidance for this year certainly beat expectations, but a lot of things have changed in recent months as well.
For one, SoFi received approval for its long-awaited bank charter in late January, and then SoFi closed on its acquisition of Golden Pacific Bancorp shortly after. A bank charter allows SoFi to use cheap deposits to fund its loans and originate loans inside the bank instead of using a third party and having to share revenue; plus, it will create a better framework for holding loans on its balance sheet and earning interest income on them.
Additionally, shortly before its earnings report, SoFi announced that it plans to acquire the core processing company Technisys for $1.1 billion, a deal it expects to close in the second quarter of this year. SoFi also just reported record member and product growth in Q4 and plans to roll out other new capabilities, like options trading on its online brokerage, which could drive some nice revenue as well. Considering all of this, I might have thought that 2022 guidance could be even stronger. Let's take a look back at SoFi's first-ever investor presentation in January 2021 and the outlook the company provided.
Image source: SoFi investor presentation January 2021.
This presentation was made over a year ago, and by now investors should probably have learned not to trust the immediate projections of companies going public through special purpose acquisition companies (SPAC), as Sofi did in first-quarter 2021. But as you can see, SoFi had initially projected to earn $447 million of EBITDA in 2022 with the bank charter. I'd also note that projected revenue in this presentation was $1.5 billion in 2022, so SoFi has consistent on that one. But I guess my question would be that considering management expected the bank charter to expand EBITDA so much in 2022, why does it feel like it's having a much smaller impact now?
There have been some issues out of SoFi's control, namely the student-loan moratorium, which has now been in effect since March 2020 and is expected to expire in May. SoFi estimates that had the moratorium run out on Jan. 31 as initially expected, the company would generate an additional $30 million to $35 million of revenue and an additional $20 million to $25 million of EBITDA in Q1. Chief Financial Officer Chris LaPointe on SoFi's recent earnings call also said that the company likely won't start originating loans from the bank until the end of May, so that explains why management expects revenue and EBITDA to ramp up later this year. Noninterest expenses also rose about 64% in 2021 and may continue to rise this year as well.
Is the guidance strong?
I am sure there are varying interpretations, but I feel like the guidance here is a bit light. Again, in recent months, SoFi has obtained the bank charter, bought Technisys, is adding other new capabilities, and also just had record new-member growth in a strong fourth quarter. Now, it's possible management is staying conservative, especially considering how quickly inflation has come on, how different the monetary picture is, and how all of this could crimp consumer demand. But even after seeing a significant decline in its stock price over the past several months, SoFi still trades at some fairly high multiples, so it has to keep growing fast to support this valuation.
