You might have missed it, but we've just witnessed the end of an era for SoFi Technologies (SOFI 2.06%) -- and in the very best way.
But first, some perspective: Shares of the online banking and personal finance specialist initially rallied after the company announced its latest quarterly results. But as has been the case for the past several quarters, SoFi stock ultimately gave up its post-earnings gains in the subsequent trading sessions.
On SoFi's headline numbers
There was nothing not to like from a bullish investor's perspective in SoFi's results. Quarterly revenue grew 27% year over year to $537.2 million, translating to a net loss of $276.9 million, or $0.29 per share, according to generally accepted accounting principles (GAAP). Adjusted for a one-time non-cash impairment of goodwill assets during the quarter, SoFi's (non-GAAP) net loss would have narrowed to $29.7 million, or $0.03 per share. By comparison, most analysts were modeling a significantly wider adjusted net loss of $0.09 per share on lower revenue of $515.6 million.
SoFi also added a company-record 717,000 new members during the quarter, bringing its total to more than 6.9 million, up 47% year over year. SoFi added more than 1 million new products during the quarter as well -- with growth driven by multi-product customers -- to bring its total to over 10 million products, up 45% year over year.
Meanwhile, total deposits at SoFi Bank grew $2.9 billion in Q3 to $15.7 billion, up 23% sequentially from the second quarter. These deposits not only provide SoFi with a lower-cost funding source for its loan products, but also afford it the flexibility to maximize net interest margin by holding those loans on the balance sheet longer (as opposed to securitizing them and selling most to third parties, as it did before securing a banking charter).
The one thing SoFi bears are missing
But for all its impressive metrics, there was another key point that many bearish investors seem to have missed in SoFi's third-quarter report: For the first time in company history, all three of SoFi's core business segments -- including the lending segment, its technology platform segment, and its financial services segment -- posted a positive quarterly contribution profit.
In particular, SoFi's budding financial services segment (through which it offers checking, savings, brokerage accounts, and credit card products) finally swung to a positive contribution profit of $3.3 million during the quarter, compared to a contribution loss of $52.6 million in the same year-ago period.
To be clear, the lagging profitability of SoFi's financial services segment had previously served as a sore spot as the company worked toward improved economies of scale. Assuming all three segments can continue to expand on their positive contribution margins from here, this might well turn out to be a watershed moment for the company as a whole as it will lend itself well to accelerated operating leverage and future profit growth.
On SoFi achieving GAAP profits... soon
To that end, SoFi management also raised its full-year 2023 outlook to call for adjusted net revenue of $2.045 billion to $2.065 billion, increased from its prior range of $1.974 billion to $2.034 billion. SoFi also raised its full-year adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) outlook to a range of $386 million to $396 million, or 18.9% to 19.2% of revenue and up from $333 million to $343 million before.
And if you've had enough reading about various profitability metrics such as non-GAAP earnings, contribution profit, and adjusted EBITDA, not to worry -- SoFi management also reiterated its promise to achieve actual GAAP net income profitability on a consolidated basis in the fourth quarter of 2023.
When that happens, and assuming SoFi continues reporting GAAP net income, I suspect it will only become increasingly more difficult for this market to continue ignoring SoFi's relative outperformance. In time, I'm confident SoFi's stock price will rally accordingly.
