SoFi Technologies (SOFI 1.12%) just reported its 2023 fourth-quarter financial results. The market was very impressed, as shares shot up 20% immediately following the news, although they have come back down since the announcement on Jan. 29 (as of Feb. 1).
The business beat Wall Street expectations for revenue and earnings, which is certainly a positive development. And it caps off a pretty strong 2023 for this fintech and digital banking pioneer.
With momentum on its side, is it time to buy SoFi stock right now? There are compelling reasons to be bullish.
Reporting a fantastic quarter
Once again, SoFi demonstrated that growth is the most important part of the company's story. Revenue increased 35% year over year to a total of $615 million, with the business seeing its customer base (what SoFi calls members) soar by 44% compared to the fourth quarter of 2022. This is despite what is a much higher interest rate environment than we've seen in the past decade.
Digging a bit deeper, the financial services segment, which includes products like checking and savings accounts, brokerage services, and credit cards, saw revenue jump 115%. And the lending division, consisting of personal, student, and home loans, also saw double-digit gains. This is solid, broad-based growth.
NASDAQ: SOFI
Key Data Points
Nearly one year ago, the U.S. was rattled by the regional banking fiasco that saw some big institutions completely fail. This forced consumers to question if they could trust their own banks with their hard-earned savings. From all of this turmoil, it looks like SoFi is one of the winners.
As of Dec. 31, the company had $18.6 billion of deposits on its balance sheet, more than 150% higher than just 12 months prior. In fact, SoFi brought in $2.9 billion of deposits in just the last quarter. Having one of the nation's best savings yields, coupled with expanded FDIC insurance, makes it easy to draw in customers.
A notable 76% of SoFi's liabilities are represented by deposits. This is beneficial from management's perspective. Not only are deposits generally sticky, as banks benefit from high switching costs, but they provide SoFi with a low-cost source of capital that the business can use to fund its lending products. This helps explain why net interest income skyrocketed 116% in 2023.
Moreover, this likely was a key factor that helped push the company to generally accepted accounting practices (GAAP) profitability. Just like management had been forecasting in prior quarters, SoFi was able to post positive net income of $48 million during Q4. That's a major milestone, and it could signal the beginning of an expanding bottom line for the business.
Impressive guidance
The market likes to see strong financial results, but investors are also looking to the future. With that said, SoFi revealed impressive guidance. Executives believe the company will grow adjusted revenue by 21% (at the midpoint) in the current quarter. And beyond 2024, they think the business can grow the top line between a 20% to 25% annualized rate through 2026.
I think the company has a huge opportunity when it comes to cross-selling its products. The average SoFi customer uses between one and two different products. As they get older, for example, and/or their incomes rise and their need for financial services grows, SoFi has a clear path to drive more engagement.
The leadership team also predicts that SoFi will be able to produce earnings per share of $0.69 in 2026 (at the midpoint). That would be a rapid ramp-up in terms of profitability. And it would be impressive, given that the business is still in full-on growth mode.
SoFi's near-term and long-term outlook must be viewed in the context of the current valuation. Shares currently trade at a price-to-earnings ratio of 11.4 based on the 2026 outlook. Yes, there is a lot of time between then and now, meaning there's a lot of uncertainty. But viewed in this light, the stock looks attractively priced today, giving investors more reason to buy.
