Amid the regional banking crisis in March, one that saw major banks run into insolvency issues, SoFi Technologies (SOFI +1.75%) stood out for its stability. Consumers undoubtedly still feel this way, as the business has seen its deposit base grow from $7.3 billion at the end of 2022 to $15.7 billion today. SoFi is winning in a difficult industry.
But are rapidly expanding deposits enough of a reason to make this online bank stock a good buy? Let's take a closer look at SoFi.
Still posting solid growth
While this company isn't posting the same levels of revenue and customer gains that it did in previous years, it's far from a lost cause. In the third quarter, SoFi increased revenue by 27% year over year to $537 million. And its membership count jumped 47% to a total of 7 million. These are still strong gains in this type of economic environment.
SoFi's digital-focused business model has done a good job of attracting a younger customer base. And this is beneficial because, in the banking industry, it's all about relationships. SoFi can start what hopefully becomes a lifelong banking relationship with its members. They might first come to the financial institution looking to refinance a student loan. And then, after college, they could look to SoFi to open a brokerage account. After a few years, taking out a mortgage or signing up for various insurance products might be the plan.
The leadership team upped its forecast for the full year of 2023. Management now expects revenue to rise between 33% and 34%, an upgrade from a prior estimate of 25% to 30% growth. And the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin is projected to come in at 19%, a huge improvement from 9% in 2022 and 3% in 2021.
Perhaps the resumption of student loan repayments will provide a notable boost to SoFi's prospects. There are 44 million student loan borrowers in the U.S., proving a sizable potential base of customers for the company to target. Persistent inflationary pressures and an unstable economic outlook may lead these individuals to turn to SoFi for refinancing solutions. And this would support higher revenue for the business.
NASDAQ: SOFI
Key Data Points
Profits are coming
Like many fintech enterprises, SoFi hasn't achieved profitability based on generally accepted accounting principles (GAAP). Most businesses like to adjust their numbers to please shareholders, but by posting positive GAAP net income, investors can be sure that the company in question is on a more sustainable path.
Management is confident that SoFi will produce positive net income in the current quarter for the first time ever. Had it not been for a one-time impairment to goodwill in Q3, the business would've posted a net loss per share of just $0.03. That marks a significant improvement.
Investors should be watching the bottom line very closely to see if executives can make good on their profit outlook. This would be welcome news that should be cheered, but only if it can happen on a consistent basis quarter after quarter. What's encouraging is that SoFi is about to hit this milestone at a time when the economy isn't exactly in the best position. It's also great to see this company, which was founded in 2011, find success in what is otherwise a tremendously competitive industry.
SoFi shares are down 42% from their recent high a few months ago. Now is a good time to consider buying the stock and owning it for the long haul.
