SoFi Technologies (SOFI 4.24%) gained 42% in October, according to data from S&P Global Market Intelligence. It hadn't impressed investors this year despite reporting a profit in every fiscal quarter. However, it finally wowed the market with its third-quarter results.
On a roll
SoFi has been reporting strong growth pretty much since it went public, but now it's also profitable. Its stock dropped in the previous bear market, and with its soaring growth rates, it was starting to look like a great deal. However, after doubling last year, the stock was dropping for most of 2024. On one hand, it was looking like an even better deal. But on the other hand, there was obviously something making investors think it was too risky, or a value trap.
It wasn't growth, which continues to come in at double-digit rates, and it wasn't profitability, which has been sustained and growing since the 2023 third quarter. No, it was interest rates.
SoFi isn't your typical established bank. It's an all-digital bank with high growth rates and little net income, which is an anomaly on the bank scene. It's a mix of a tech stock and financial stock, the prototype fintech stock. So while the growth was impressive, as SoFi gets its name out and established itself among industry giants, there's more risk.
That's been most apparent in its exposure to interest rates. The growth in SoFi's revenue from its loan segment was slowing, and management was warning investors for most of the year that full-year loan revenue was going to be lower than last year. Management has been touting its other segments, specifically the financial services segment, which has been growing at high rates. However, it remains a smaller part of the business.
There were a few important updates in the third-quarter report that set things right. Revenue growth accelerated to 30%, and earnings per share (EPS) came in higher than expected at $0.05.
What was probably more well received was that management is now saying loan revenue will be at least as much as last year. SoFi stock was already rising since the Federal Reserve cut interest rates, and it turns out that the cuts are already having a positive impact on the business.
Low interest rates should keep it going
As usual, SoFi reported members and products increasing at high rates. Customers are drawn to its easy-to-use platform and high rates, and platform growth hasn't let up.
SoFi has a long growth runway, and as interest rates move in its favor, it could jump in the short term, too. However, buy it for the long-term opportunity as it captures market share and disrupts traditional banking.
