With just three weeks left to the year, the S&P 500 hit a year-to-date high this week and is up about 21%. More investors may be more comfortable getting back into the market as economic indicators point toward a lower risk of a recession and moderating inflation. If these trends hold up, we could be on the cusp of a bull market, and you can get ready for rising prices by investing in top stocks at great prices right now.
SoFi Technologies (SOFI 3.69%) has had a phenomenal year and is up 73% in 2023. That's been fueled by incredible performance. But can investors expect more? Let's see if you can still buy shares, or if it's time to cash out.
How SoFi is building loyalty
SoFi has homed in on what's important to its core customers, and it's using that knowledge to expand and become increasingly relevant to how they manage their finances. It calls its strategy the financial services productivity loop, and it involves hooking customers into its system with high rates, low fees, and a simple, all-digital app, and then cross-selling new products and services to them. A Motley Fool survey found that user interface is the most important feature that a younger demographic looks for in an investing app, and that's where SoFi is a star.
This has been a critical shift in moving away from its roots as a student-loan operation into its newer iteration as a full financial services app. Lending is still an important segment of the business, but it has a different role now as one part of a whole that includes bank accounts, investing tools, insurance products, and more. This pivot is generating strong engagement and leading to higher sales, and it's trickling down into improved profitability.
Image source: SoFi Technologies.
A key result noted in this chart is that not only are non-lending products growing in addition to lending products, they are growing exponentially faster than lending products. In the third quarter, 67% of revenue came from non-lending products.
This strategy has been pivotal to SoFi's growth despite the student-loan repayment moratorium that ended in October; a well-rounded suite of products helps it thrive in different kinds of economies.
As the loan-repayment moratorium ends, and interest rates have stabilized, lending will contribute more value to the whole. SoFi Chief Executive Officer Anthony Noto pointed out that 77% of third-quarter adjusted net revenue in the lending segment was net interest income, which increased 90% over last year to $265 million. That was almost double expenses in this segment.
Higher engagement leads to improved profitability
That's how Noto is painting the picture of SoFi's path toward profitability. It's still investing in and laying the foundation of a powerhouse financial services company, attracting new members and getting closer to profitability at scale.
The company added 717,000 new customers in Q3, a 47% increase over last year. Deposits rose 23% year over year, or by $2.9 billion, to $15.7 billion, and deposits invested in loans or other assets lead to higher earnings through net interest income. Net interest income in the financial services segment increased 231% year over year in Q3, and it turned a positive contribution to profit for the first time.
Management reiterated that it expects to report positive net income in the 2023 fourth quarter.
Can SoFi stock continue to climb?
SoFi stock trades at a price-to-sales ratio of 3.8 at the current price. That's an attractive valuation for a high-growth stock. It has a huge growth runway, and it's on its way toward net profitability. If you sell now, you could pocket some gains, but you might be giving up on a huge opportunity over the long term. If you have some appetite for risk, I recommend buying SoFi stock.
