Innovative online bank SoFi Technologies (SOFI 1.57%) certainly caught the attention of the investment community at its market debut, as disruptive financial companies were all the rage at the time. Then 2022 came along, and it sent shares in a tailspin. They ended last year down 71% as the market favored steady and profitable companies over more speculative ones.
To be fair, however, SoFi is already up 25% so far in 2023 (as of March 27), easily beating the Nasdaq Composite Index by a wide margin. And shareholders are probably wondering where the fintech stock will be one year from now. Here's what you need to know.
NASDAQ: SOFI
Key Data Points
Tremendous growth potential
There's no denying just how impressive SoFi's growth has been over the years, with the company's revenues, membership count, and products increasing at impressive rates. Even in 2022, when interest rates were rising rapidly, SoFi was able to put up strong numbers. Adjusted revenue of $1.5 billion was 52% higher than the prior year and more than triple 2019's total, with strong gains posted in every single quarter of 2022. The membership base increased by 51%, bringing the total to 5.2 million.
"We navigated unparalleled market volatility, macro headwinds, high inflation, and increasing interest rates and two unexpected extensions of the student loan moratorium by reacting nimbly and leveraging the diversification of our business to hit record revenue in each quarter of the year," CEO Anthony Noto said on the Q4 2022 earnings call. "The fourth quarter was an incredible end to an exceptional year."
This adaptability really bodes well for SoFi in what has been one of the most uncertain economic periods in recent memory. Management expects adjusted net revenue to jump 25% to 30% in 2023. This is a notable slowdown from prior years, but it would still be a healthy gain given the current economic climate.
But profits are elusive
While SoFi's revenue and membership growth has been outstanding, this business hasn't yet produced positive net income on a consistent basis. In fact, SoFi posted a net loss of $320.4 million in 2022, the fifth straight year the business has been in the red. Shareholders might shrug this off because SoFi has been trying to expand quickly, foregoing profit in the name of gaining market share and boosting its membership base.
But at a time when investors are once again prioritizing profitability and financial soundness, SoFi needs to figure out a path to turning the corner soon. In a surprise bit of news, management expects to reach positive net income on a GAAP (Generally Accepted Accounting Principles) basis in the fourth quarter this year. A lot can happen throughout the course of 2023, so investors shouldn't take their victory laps just yet. But this is definitely a positive sign, and it could boost the stock price should it come to fruition.
It's extremely difficult to predict where any stock will be 12 months from now. In SoFi's case, it showed the ability to navigate 2022 well, despite a strange macro backdrop that has become even more uncertain thanks to the banking crisis. To its credit, the vast majority of SoFi's deposits are insured by the Federal Deposit Insurance Corporation. Moreover, 97% of the company's loan portfolio (as of Dec. 31, 2022) was in student loans and personal loans, which have shorter durations than mortgages or 30-year Treasuries, and therefore, are less affected by rapid increases in interest rates. This should ease investor concerns in the near term. Nonetheless, shareholders should expect 2023 to be a volatile year for the stock, which trades at a historically low price-to-sales multiple of 3.3.
If SoFi can exceed Wall Street expectations, shares could be priced higher than they currently are, as good things can happen to cheap stocks. However, if investors continue to sour on unprofitable growth businesses in favor of safer ones, then it's easy to see a situation where SoFi remains well off its highs for quite some time.
