For the three-month period ended June 30, SoFi Technologies (SOFI -2.71%) posted net revenue of $498 million, up 37% year over year, with a net loss of $48 million that showed a major improvement compared to the second quarter of 2022. This better-than-expected performance sent the stock soaring more than 20% immediately after the announcement, as investors cheered the news.
With the shares up more than 100% in 2023 and coming off a positive earnings report, is SoFi stock a buy right now? Let's take a closer look at this popular fintech stock.
Surprising to the upside
SoFi's headline numbers were certainly impressive. Revenue growth was driven by a member base that increased by 44% to 6.2 million. The business added 847,000 new products in the period, with the active total now at 9.4 million. This means that the average SoFi customer uses about 1 1/2 different products. The hope is that even as the membership base expands, SoFi can take advantage of cross-selling opportunities to boost its revenue.
The company's bottom line improved tremendously, as the loss was cut in half year over year thanks to better monetization of accounts and greater marketing efficiencies. Unlike many fintechs that struggle with posting positive net income, SoFi could be turning the corner financially.
"We remain well on track for [generally accepted accounting principles] GAAP profitability by Q4," Chief Executive Officer Anthony Noto said on the Q2 earnings call. Investors should be paying close attention to see if this goal is reached.
A higher-interest-rate environment is beneficial to lenders because it raises the amount that they can earn on their assets. SoFi's net interest margin (NIM) was 5.7% in the most recent quarter, up a half-percentage point versus Q2 2022 and an improvement sequentially. This demonstrates that SoFi's asset base is earning yields that are rising at a faster clip than its liabilities.
What's interesting is that SoFi's lending products are registering accelerating revenue growth, even as interest rates have soared. In the last quarter, the company originated 37% more loans, with personal loans representing the bulk.
Continuing a trend from the past quarter, the business keeps expanding its deposit base, now totaling $12.7 billion. Besides SoFi's deposit growth being a sign of customer confidence in the financial institution, it's beneficial because it lowers funding costs. Rates paid on deposits are typically much less than if SoFi raised capital through the debt or equity markets, for example. And this could lead to an even wider NIM.
Despite SoFI's upbeat earnings report, investors should still keep in mind the macroeconomic environment. Although the U.S. economy has shown resilience, and the forecast probability of a recession dwindles, the fact that this business is still a bank presents risks. A severe downturn could stunt SoFi's progress, leading to decelerating growth and increasing loan losses.
Looking at SoFi's valuation
After the stock's monumental run-up in 2023, it trades at a price-to-sales (P/S) ratio of 4.7. That's not only a huge premium to where shares sold for at the start of the year, but it's also higher than SoFi's historical average P/S multiple of 4.3. Perhaps this is why despite the positive financial update, it didn't prevent one Wall Street analyst from lowering the price target on SoFi's stock.
It's hard not to get excited about SoFi's momentum so far in 2023, especially when the regional banking industry overall has faced challenges. The company is on the verge of producing positive net income later this year, according to the management team. And its membership gains have been outstanding.
For investors who are more interested in the growth story and are also OK with paying a higher valuation, then SoFi could make for a solid buying opportunity today.
