SoFi Technologies (SOFI 3.69%) stock was a standout in 2023, gaining 116%. But that's all gone downhill this year and the share have fallen 25% in 2024.
What changed? If anything, SoFi posted a fabulous fourth-quarter report that seems to have set off the decline. Is this something to steer clear of? Or is this a big buying opportunity hidden in plain sight?
Everything was right about the fourth-quarter report
SoFi reported excellent Q4 results with continued growth and newfound profitability. Revenue increased 35% year over year, and SoFi reported its first generally accepted accounting principles (GAAP) profit, as promised. Net income came in at $48 million, or $0.02 per share, after a $0.05 loss last year.
Even more telling, though, are the continued increases in accounts and products. SoFi added 585,000 new accounts, a 44% increase over last year, and now has more than 7.5 million. It added 695,000 new products, a 41% increase.
Image source: SoFi.
The lending segment, which has been SoFi's core, is bouncing back after getting hit by high interest rates and the student loan repayment moratorium. Lending segment revenue increased 10% year over year in 2023, and net interest income increased 81% for the segment for the full year. Personal loans, student loans, and even home loans all increased in Q4.
While one quarter is just that, and investors shouldn't get too excited about a snapshot in time, these were continuations of trends at SoFi. Customers are looking for just the kinds of products and services that SoFi offers, with low-fee products on an easy-to-use app geared toward young clients who have good jobs and some financial knowledge.
SoFi's strategy is to attract customers with easy-to-use products and high interest rates, and then cross-sell them new products and services. SoFi has expanded from lending products to the full gamut of financial services, including credit cards, bank accounts, and investing tools.
SoFi isn't straying too far from its origins as a student loan cooperative, targeting students and young professionals. But it has expanded to offering a broad range of products for this population. About 90% of deposits are from direct deposit members, driving a cycle of deposit growth and increasing net interest income. Since these customers are young and in good jobs, SoFi is well-positioned to benefit from building up long-term relationships with this growing customer base.
Investors are scared of...nothing?
Not only were the Q4 results fantastic, but management expects more, including a profit in the 2024 first quarter and the full year.
One new development that had investors running for the hills was the announcement of a new debt offering. If SoFi is doing so well, why is it looking to raise cash right now? It looks especially suspicious given that interest rates are meant to start coming down. Management said that most of the cash would be to redeem high-interest preferred stock. So it doesn't look like it's as bad as investors might think at first glance.
Other than that, investors might be putting the brakes on SoFi stock because it's already soared quite high. It's still a financial company that has exposure to interest rate volatility, and in that position, investors won't necessarily award it a high valuation. Along those lines, SoFi is a bank, even though it's also a fintech. Bank stocks have lower valuations than other stocks, and investors may be realizing that as it becomes profitable, it needs to be compared with other bank stocks and valued more similarly.
Even considering that, SoFi has a compelling story and incredible growth potential. It's resonating with its core customer base and capturing market share. This looks like a great opportunity to buy shares on the dip.
