SoFi Technologies (SOFI 1.12%) has experienced a remarkable surge this year, with its stock soaring 89% since the beginning of 2023. Its impressive performance can be attributed to positive catalysts fueling its business, particularly the recent end of the student loan moratorium.
SoFi presents an interesting case study -- investors are divided on whether they should value the online banking and lending platform as a rapidly growing fintech, or as a bank stock. In this article, we'll delve into SoFi's business, which aims to be a one-stop shop for financial services, and see if this stock is right for you.
The pandemic forced SoFi to make a crucial pivot
When SoFi was founded in 2011, the company focused on helping people refinance student loans at lower interest rates. It grew into providing personal and home loans and has since grown into a full-service fintech offering credit cards, cash management, investment accounts, and technology solutions for its customers.
In recent years, the business faced serious headwinds when the government paused student loan interest payments during the pandemic. In 2019, SoFi originated $6.7 billion in student loans. That figure has since fallen to $2.2 billion in 2022 -- down 66% from pre-pandemic levels.
Politicians recently agreed to end the student loan moratorium as part of the recent debt-ceiling deal, and student loan repayments are expected to continue by the end of the summer. SoFi investors welcomed this news, with the stock rising 48% since the deal was announced.
Although the moratorium hurt SoFi's initial business, the company used the opportunity to expand its reach and become a full-service financial company. One area where it saw tremendous growth was in personal loan lending. In 2022, the company originated $9.8 billion in personal loans, which was a 161% growth from pre-pandemic levels.
One reason SoFi has achieved this growth is because of its purchase of Golden Pacific Bancorp, which closed in February 2022. By acquiring a banking charter, SoFi can collect deposits and hold more loans on its books. This has also allowed SoFi to collect interest income in a rising interest rate environment -- boosting its net interest income (NII).
Last year, SoFi's $584 million in NII represented 132% growth from the year prior. Strong growth in this area continued in the first quarter, with NII $236 million growing 149% from the same period last year.
It's adding customers at a staggering pace
SoFi's growth is undeniable. Since Q1 2020, the fintech has added 4.5 million members, growing by 420%. Meanwhile, its products, which include all of its financial and lending products across its suite of options, have grown by 622%.
However, this growth has come at the expense of growing costs. Over the past 12 months, the fintech has lost $244 million and still has work to do to achieve profitability. Management did inspire some hope, telling investors they expect to achieve profitability on a generally accepted accounting principles (GAAP) basis by the fourth quarter of this year.
SOFI Revenue (TTM) data by YCharts.
Is SoFi a buy?
The big debate is whether SoFi should be traded more like an explosively growing fintech or if it is more comparable to bank stocks. Currently, SoFi trades at a premium valuation compared to major banks like JPMorgan Chase and Bank of America. Its price-to-tangible-book-value ratio (P/TBV), which measures its value compared to its assets (excluding intangible assets), is currently 2.5 -- well above JPMorgan Chase's and Bank of America's P/TBV of 1.9 and 1.3.
SOFI Price to Tangible Book Value data by YCharts.
However, when it comes to valuation, you must also consider the growth prospects of a company. JPMorgan Chase and Bank of America are mature banks with stable but low growth rates. Over three years, these banks have seen their top-line revenue grow by 14.6% and 13.7%, respectively. SoFi, in comparison, has seen its revenue grow 151%. Its higher valuation compared to bank stocks is warranted because of its rapid growth.
While the fintech has work to do achieving profitability, it has favorable tailwinds from the ending of the student loan moratorium and continues expanding its financial services business rapidly. The company also has an appealing technology business, which could give it a foothold in the rapidly growing banking-as-a-service sector, which is expected to grow 17% annually through 2030.
Given its rapid growth and emerging technology business, SoFi looks like an excellent stock to buy and hold for the long haul.
