Despite a dismal performance in 2022, shares of all-digital bank SoFi Technologies (SOFI 0.07%) climbed 50.3% in January. There are lots of reasons for the run-up, not least of which were a better-than-expected performance during the fourth quarter of 2022 and an improved outlook.
Will the big gains SoFi made in January fizzle out in February, or is the stock at the beginning of a much longer bull run? Let's look at what pushed the stock higher in the first place to see if it can continue climbing.
Why SoFi stock jumped
Shares of SoFi jumped more than 14% on Monday, January 30, in response to fourth-quarter results that blew past expectations. Total revenue soared 60% year over year to $457 million, which exceeded expectations by $30 million.
Wall Street was also surprised by an unexpectedly small fourth-quarter net loss of $40.1 million, or $0.05 per share. The average investment bank analyst following SoFi expected a loss of $0.09 per share.
In addition to a better-than-expected fourth-quarter performance, SoFi told investors its operation will achieve profitability earlier than expected. Now, the company predicts that it will reach that milestone, according to generally accepted accounting principles (GAAP), in the fourth quarter of this year.
Why SoFi could climb even higher
SoFi is an innovative fintech company, but it's also playing the same game as traditional banks. The company obtained a national banking charter in the first quarter of 2022 that allows it to fund its lending operation with relatively low-interest consumer deposits.
In 2022, SoFi's member base more than doubled to reach 5.2 million, and many have decided to make it their main bank. Member deposits grew sevenfold in 2022 to finish the year at $7.3 billion.
More member deposits are lowering the cost of funding loans for SoFi. As a result, SoFi Bank generated $30 million in net income, on a GAAP basis, at an 11% profit margin during the fourth quarter.
SoFi Bank performed so well during 2022 that it's easy to forget there were two unexpected extensions of the student loan moratorium. Until 2015, providing and refinancing student loans was practically SoFi's entire business. Rapid expansion into personal loans, auto loans, and mortgages kept the bank out of trouble in 2022, and this diversification will serve it well in the years to come.
In addition to the bank growing more popular with consumers, SoFi's technology segment is becoming the Amazon Web Services of the fintech industry. The company owns Galileo, an application programming interface that enabled 131 million accounts at the end of 2022. That was 31% more accounts than Galileo was a part of a year earlier.
In addition to lowering SoFi's cost of doing business, the company's technology segment contributed a $17 million profit at a 20% margin during the fourth quarter.
A buy at this price
Shares of SoFi have surged this year, but the stock is still trading at a very reasonable price of 1.2 times the bank's book value. That's lower than JPMorgan Chase's present valuation and only slightly higher than those of Wells Fargo and Bank of America.
SOFI Price-to-Book Value data by YCharts.
SoFi's market valuation is in line with that of stodgy old banks, but those banks don't have this digital darling's unique combination of underlying businesses. With a finger on the pulse of the entire fintech industry and an increasingly successful consumer banking operation, SoFi could run circles around its peers. Buying the stock and holding it over the long run looks like a smart move to make right now.
