It has been a great year so far for technology stocks. The Nasdaq Composite is up about 31% year to date, after falling about that much in 2022. Fintechs have been a big part of that growth story, as many have been skyrocketing, like Upstart, which is up about 182% since the start of the year.
With some of these high-flying fintechs, they're just seeing short-term rebounds after massive losses over the past two years, but with others, there is still room to run. With second-quarter earnings results coming up in the next few weeks, SoFi Technologies (SOFI 9.33%) is a fintech to watch.
SoFi Technologies: Room to grow
SoFi is one of those fintechs that has had a meteoric rise in 2023, with shares up about 78% year to date. But there appears to be more room for SoFi to run.
Some of the enthusiasm is related to the Biden administration agreeing to end the moratorium on student loan repayments, which had been in place since the start of the pandemic in March 2020. This should provide a revenue boost because student loan volumes in the first quarter were down more than 50% from the average pre-pandemic volume. There's also the fact that SoFi has been growing rapidly, even with the reduction in student loan revenue. Its lending revenue increased by 33% due to higher interest rates and record volumes in personal loans. It originated $3 billion in personal loans in the quarter, up 46% year over year.
SoFi's decision to buy a bank and get a bank charter has been paying off, as the fintech has been able to expand its lending activity and reduce deposit costs as a result of not having to use third parties. Deposits in the quarter grew by 37% year over year to $10 billion, with 97% of them insured.
"As a result of this growth in high-quality deposits, we have benefited from a lower cost of funding for our loans. Our deposit funding also increases our flexibility to capture additional net interest margin (NIM) and optimize returns, a critical advantage in light of notable macro uncertainty," CEO Anthony Noto said.
The bank charter also helped boost SoFi's financial services business, which includes checking and savings accounts, investments, direct deposit, credit cards, and other services. That business grew by 244% year over year to $81 million. And the number of products that its customers, or members, used jumped 51% year over year to 7.1 million.
The third leg of its business, its technology platform, where clients use its platform to launch banking-as-a-service products, also saw revenue gains, rising 28% year over year. Overall, revenue was up 43% to $472 million in the first quarter, and the net loss was down to $34 million, comparing favorably to the $110 million loss from a year ago.
On the road to profitability
The end of the loan repayment moratorium should provide a revenue boost, but already, SoFi is on pace to exceed its earlier guidance projections.
SoFi expects to generate $470 million to $480 million of adjusted net revenue in the second quarter, which would be a 32% to 35% year-over-year increase. It also raised its forecast for full-year net revenue to a range of $1.96 billion to $2.02 billion, up from its prior guidance of $1.93 billion to $2 billion. This is before the moratorium was lifted, so that figure could potentially be higher.
Also, the company projects full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $268 million to $288 million, up from its previous guidance of $260 million to $280 million. And by the end of 2023, SoFi expects to reach quarterly GAAP net income profitability.
In addition to its growth prospects, SoFi is still relatively cheap. It has a price-to-sales ratio of 3.8, up from 2.8 at the end of Q1 but down from 4.6 in the first quarter of 2022. Also, its price-to-book ratio is a reasonable 1.5, down from 1.7 in last year's first quarter.
SoFi is a better business than it was a year ago thanks to the strength of its banking operation, its student lending being back in business, and the continued growth of its technology platform. This should allow it to better navigate the rough patches until the economy improves.
Look for SoFi's second-quarter earnings results when they are released on or around Aug. 1. But the stock looks like a good buy right now.