Shares of SoFi Technologies (SOFI +1.41%) tanked on Tuesday in response to what appeared to be an outstanding third-quarter report. The bank stock had risen sharply in recent weeks only to sink more than 10% on Tuesday morning after investors got a good look at its latest report.
Here's a quick look at what CEO Anthony Noto called SoFi's "strongest quarter" yet to see if the recent beating is warranted. If not, now could be a great time to pick up this stock at a relative discount.
NASDAQ: SOFI
Key Data Points
The good news in SoFi's third-quarter results
You don't need a trained eye to see signs of success in this consumer-focused bank's recent results. The number of people with a SoFi account rose 35% year over year to 9.37 million.
With a broad range of related financial products, folks who initially engage with SoFi for a personal loan often open a checking account and vice versa. The number of products such as credit cards, personal loans, and retirement accounts that its customers have reached 13.65 million. If we exclude crypto services that SoFi stopped offering late last year, total product usage rose by 37% year over.
Consumers aren't the only ones flocking to SoFi these days. The company also owns the Galileo technology platform, which powers its new commercial payment services program. Businesses that offer a range of financial services including Toast and H&R Block hire Galileo to build and scale their unique products. During the year ended in September, the number of accounts Galileo managed rose 17% year over year to 160 million.
Millions of new members with new financial products, plus all the previous ones sticking around drove total revenue 30% higher year over year for SoFi. On the bottom line, SoFi reported profits on a GAAP basis for the fourth quarter in a row. Earnings before interest taxes, depreciation, and amortization (EBITDA) shot 90% higher year over year to $186.2 million. That worked out to a very healthy 27% of total revenue.
SoFi's member base is growing fast but credit quality hasn't slipped. It's improved. The bank's personal loan charge-off rate dropped to 3.52% in the third quarter from 3.84% in the second quarter.
SoFi raised guidance but the stock fell anyway
For the full year, management raised its revenue guidance by $85 million to a range between $2.535 billion and $2.55 billion. The new range implies 22% to 23% revenue growth year over year.
SoFi also bumped up bottom-line expectations. Now, it expects to earn between $0.11 and $0.12 per share this year. That's a big improvement from the range between $0.09 and $0.10 per share management issued three months earlier.
If there was anything for investors to be upset about, it would be a declining net interest margin. The difference between interest earned and interest paid was 5.57% in the third quarter down from 5.99% in the previous year period.
Time to buy?
If SoFi's declining net interest margin in the third quarter was due to increasing costs of capital, it could be a cause for concern. Instead, a shift from unsecured personal loans toward less risky secured loans was responsible for the reduction. While its loan portfolio is a little less lucrative, less reliance on unsecured loans is a net positive for risk-averse shareholders.
While a declining price brings SoFi stock closer to bargain territory, this stock is still richly valued. Despite falling hard on Oct. 29, it's still trading for more than 80 times 2024 earnings expectations.
SoFi's member base has grown quickly but it's decelerating now that there are 9.4 million customers. Growing rapidly enough to justify a lofty valuation could be a challenge in the years ahead. It's probably best for investors to wait for a more attractive entry point.
