Investors can't make up their minds about SoFi Technologies (SOFI +2.05%) stock. It soared after a fantastic quarterly report and then immediately tumbled.
But while there's certainly risk with a fairly young company that's yet to truly disrupt traditional banking, there are many reasons to be confident about SoFi's future. Here are five of them.
1. It's expecting high growth for the next few years
SoFi was reporting some truly incredible growth rates for a while, but they've decelerated in the high-interest-rate environment. Revenue growth is still strong and steady, accelerating to a 35% year-over-year increase in the 2023 fourth quarter.
Can it keep it up? If interest rates are cut as expected, that should bring more money into its system, with more loans that feed into higher net income. Its lending unit, which was its original core business, is already on the upswing. Total loan originations increased 45% in the fourth quarter year over year, driven by a 41% increase in personal loans. But even home loans increased 3% over last year. Loan segment revenue increased 20% in 2023, with a 24% increase in contribution profit.
NASDAQ: SOFI
Key Data Points
Management is expecting total revenue to increase at a compound annual growth rate of 20% to 25% through 2026, barring any extreme circumstances. Since it's been performing admirably over the past few years, when circumstances have been anything but stable, that doesn't look like a bar too high to reach.
2. Customer count is increasing at a high rate
SoFi is benefiting from consumers looking for better rates on deposits in the volatile economic climate. Its core target market is students and young professionals, and these cohorts are attracted to an easy-to-use interface. Younger customers are driving SoFi's growth, and that puts it in an excellent position to keep revenue rising for many years as it grows with its customers.
It added 585,000 new accounts in the fourth quarter, a 44% year-over-year increase, ending 2024 with 7.5 million accounts.
Image source: SoFi.
3. It's investing in new products
Management uses a strategy called the financial services productivity loop. It's developing a full range of financial products, all available on its digital app, which drives greater engagement. It acquired a bank charter with its acquisition of Golden Pacific Bancorp in 2022, and it now offers services like bank accounts, investing, and credit cards in addition to its lending segment. It's also innovating with services that appeal to its target demographic of young, savvy customers, and it recently released an "alternative investments" product for SoFi Invest on top of developing its own exchange-traded fund (ETF) last year.
More customers are adopting more products, leading to cost efficiencies and driving profitability. It added nearly 700,000 new products in the fourth quarter, a 41% increase over last year.
4. It's reporting positive net income
Management had promised a generally accepted accounting principles (GAAP) profit in the fourth quarter, and it came through with $48 million in net income. The update is that it expects this to continue. It forecast $15 million in net income at the midpoint of its estimates for the 2024 first quarter and $100 million for the full year.
It's too early to say that SoFi is now sustainably profitable and stable, but it's moving in the right direction. Its revenue increases, along with cost efficiency, are leading to profitability at scale, and that trend is likely to continue.
5. It sports a low valuation
SoFi's revenue increased without a corresponding increase in share price, so its valuation decreased. SoFi stock trades at a price-to-sales ratio of 3.8, which is a bargain for a high-growth company that's becoming profitable. This is an opportunity to buy a great stock on the dip. You'll thank yourself in a few years.
