What happened
Shares of financial technology company SoFi Technologies (SOFI 1.97%) lost 10% of their value in November, according to data from S&P Global Market Intelligence. The company has been facing a number of challenges this year related to the down economy, and these were reflected in the third-quarter earnings report, which was released on Nov. 1.
So what
SoFi went public exactly two years ago as a one of a handful of fintech stocks that caught investor attention and quickly soared. However, as unprofitable growth stocks fell out of favor in 2022, it's been having a tough year, and its stock is down 70% in 2022.
The company offers a multitude of financial services on its digital app, with the goal of being a one-stop shop that provides an easier, better overall experience for customers to manage their money. Its largest segment until now has been student loans, but it has expanded its services to include banking, investing, and more.
That has resulted in strong growth. Member accounts topped 4.7 million in the third quarter, a 61% year-over-year increase, with a 69% increase in products, to 7.2 million. Revenue reached $423 million, or a 56% increase over last year.
But investors aren't so enthused despite the strong growth. Net loss more than doubled from $30 million last year to $74 million this year, and the company's deeper foray into banking means it has greater exposure to loan defaults. In the third quarter, SoFi benefited from higher interest rates with an increase in net interest income on loans, and loan volume increased as well.
However, it's suffering from the student loan moratorium, which the government has extended until June 2023. That means what has been SoFi's bread and butter is likely to continue taking a serious hit well into 2023. Student loan volume decreased more than 50% in the third quarter. The housing market is struggling as well because of rising interest rates, which affected SoFi's loan book as well in the third quarter. Home loan volume decreased 73% from last year.
Now what
SoFi acquired Golden Pacific Bancorp in February, giving it a bank charter and allowing it more flexibility in its services and and operations. It also acquired cloud banking platform Technisys this year, which should upgrade its systems and provide an improved customer experience.
There's a lot to like here, along with huge growth potential as the company upgrades, gains customers, and grows revenue. However, it's dealing with a lot of headaches right now related to the economy, and widening losses as it grows. There's no rush to buy SoFi, but investors should keep it on their watch lists.
