Shares of SoFi Technologies (SOFI 2.66%) popped 16.6% this week, according to data from S&P Global Market Intelligence. The financial technology upstart and consumer bank posted strong growth across the board in the third quarter, which investors applauded. However, the company remains unprofitable. This is likely why the stock is still off 70% from all-time highs, even after this week's rise in price.
Strong quarterly earnings, but still no profits
In the third quarter, SoFi added 717 thousand new customers to its digital banking and financial services platform, hitting just under 7 million total members, growing 47% year over year. This led to deposits growing by $2.9 billion quarter over quarter for a total of $15.7 billion. As a consumer bank, growing deposits is the most important top-line number for SoFi. This is the fuel that allows it to offer loans and earn a net interest margin.
With rapidly growing deposits, SoFi has been able to steadily grow its loan book, especially in personal loans. Financially, this has helped it increase its net interest income, which hit $345 million in the quarter, up from $157 million a year ago. That is more than 100% growth in net interest income.
Outside of lending, SoFi has some financial technology offerings that make up a solid portion of this business. Add these to the mix, and SoFi's total revenue for the period was $537 million, putting it on pace to be a multibillion-dollar revenue generator each year.
But despite all this revenue generation, SoFi is still not profitable. With a ton of money spent on marketing, technological development, and overhead costs, SoFi posted an operating loss of $267 million in the third quarter. Even if we take out a one-time goodwill impairment of $247 million, it still would have lost $20 million in the period. Even though the company is clearly resonating with consumers, it will eventually need to turn a profit if it wants to please Wall Street.
NASDAQ: SOFI
Key Data Points
Is the stock cheap?
SoFi shares are hard to value due to the fact it is unprofitable. At a market cap of $7.75 billion, it trades at a multiple of 1.5 times its book value, which is a standard measure for valuing a bank. This is neither too expensive nor too cheap, depending on how fast you think it can grow in the future.
But it also depends on what sort of margins SoFi can generate at scale. Bulls will argue it should start seeing a profit inflection and healthy 15% to 20% margins, which would indicate the stock is cheap at these levels. Bears may argue that SoFi Technologies has never been profitable, a sign something is off with its business model. Anyone looking to buy shares needs to try and figure this out.
