SoFi Technologies: Just Getting Started

seekingalpha2023-08-01

I going to make a greatest artwork as I can, by my head, my hand and by my mind. Introduction Back in November 2022, I laid out a bullish investment thesis for SoFi Technologies (NASDAQ:SOFI) at ~$5.7...

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Rurulz
2023-08-01
Rurulz
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Introduction Back in November 2022, I laid out a bullish investment thesis for SoFi Technologies (NASDAQ:SOFI) at ~$5.7...</p>\n\n<a href=\"https://seekingalpha.com/article/4622031-sofi-technologies-just-getting-started\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4166","symbol_name":"消费信贷","start_time":0,"source_url":"https://seekingalpha.com/article/4622031-sofi-technologies-just-getting-started","article_id":"2356941672","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1401461124/image_1401461124.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2356941672","pubTimestamp":1690893000,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"I going to make a greatest artwork as I can, by my head, my hand and by my mind. Introduction Back in November 2022, I laid out a bullish investment thesis for SoFi Technologies  at ~$5.7 per share in \"SoFi Q3: Another Great Quarter In The Books, Buy Now For 2023 And Beyond\". And then once again highlighted SoFi as an emerging force in the banking & financial services industry and an outlier in an ailing sector in SoFi: The Only Bank You Want To Bank On Right Now in late June 2023. Since these bullish reports were published, SoFi's stock has rallied by ~101% and ~37%, respectively. In today's note, we shall review SoFi's Q2 2023 earnings report and re-evaluate its absolute valuation to see if the risk/reward dynamic still makes sense here. Without further ado, let's jump straight in!","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4166":"消费信贷","SOFI":"SoFi Technologies Inc.","BK4549":"软银资本持仓","BK4551":"寇图资本持仓","BK4535":"淡马锡持仓"},"translate_title":"SoFi技术：刚刚起步","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SOFI":1},"content_text":"I going to make a greatest artwork as I can, by my head, my hand and by my mind. Introduction Back in November 2022, I laid out a bullish investment thesis for SoFi Technologies (NASDAQ:SOFI) at ~$5.7 per share in \"SoFi Q3: Another Great Quarter In The Books, Buy Now For 2023 And Beyond\". And then once again highlighted SoFi as an emerging force in the banking & financial services industry and an outlier in an ailing sector in SoFi: The Only Bank You Want To Bank On Right Now in late June 2023. Since these bullish reports were published, SoFi's stock has rallied by ~101% and ~37%, respectively. In today's note, we shall review SoFi's Q2 2023 earnings report and re-evaluate its absolute valuation to see if the risk/reward dynamic still makes sense here. Without further ado, let's jump straight in! Reviewing SoFi's Q2 2023 Earnings Report On 31st July 2023, SoFi released a robust set of financial numbers for Q2'23:  Adj. net GAAP revenues of $489M (up +37% y/y) [vs. est. $473.5M] Adj. EBITDA of $77M (up 285% y/y) (adj. EBITDA margin: 16%) Diluted EPS -0.06 [vs. est. -0.07] Members: 6.240M [584K added in Q2 2023] (up 44% y/y)    SoFi Q2 2023 Investor Presentation  SoFi Q2 2023 Investor Presentation Despite facing a challenging macroeconomic environment, SoFi's lending business (revenue: $257M [+29% y/y]) held up strong in Q2 2023, with strong growth in net interest income (+103% y/y) and robust loan origination growth (+37% y/y). While origination growth in the Personal loan segment (+51% y/y) was enough to offset weakness in the Student loan (-1% y/y) and Home loan (-27% y/y) segments, SoFi's non-interest income declined -30% y/y due to change in loan mix and lower take rates.   SoFi Q2 2023 Earnings Press Release   SoFi Q2 2023 Earnings Press Release Fortunately, SoFi's Technology Platform and Financial Services segments reported strong performance during Q2:   Twitter  SoFi Q2 2023 Investor Presentation On these robust results, Anthony Noto, SoFi CEO, provided the following remarks:  We delivered another quarter of record financial results and generated our ninth consecutive quarter of record adjusted net revenue, which was up 37% year-over-year. Record revenue at the company level was driven by record revenue in both our Technology Platform business segment and our Financial Services business segment coupled with continued strong Lending business segment revenue growth. We also generated our fourth consecutive quarter of record adjusted EBITDA of $77 million, representing a 43% incremental adjusted EBITDA margin and a 16% margin overall, as well as a 36% incremental GAAP net income margin Our record number of member additions and strong momentum in product and cross-buy adds, along with improving operating efficiency, reflects the benefits of our broad product suite and unique Financial Services Productivity Loop (FSPL) strategy. We added over 584,000 new members during the second quarter, and ended with over 6.2 million total members, up 44% year-over-year. We also added nearly 847,000 new products during the second quarter, and ended with over 9.4 million total products, a 43% annual increase. Total deposits grew by $2.7 billion, up 26% during the second quarter to $12.7 billion at quarter end, and over 90% of SoFi Money deposits (inclusive of Checking and Savings and cash management accounts) are from direct deposit members. For new direct deposit accounts opened in the second quarter, the median FICO score was 747. More than half of newly funded SoFi Money accounts are setting up direct deposit by day 30, and this has had a significant impact on debit spending, with continued strong cross-buy trends from this attractive member base into Lending and other Financial Services products. With our launch of offering FDIC insurance of up to $2 million, nearly 98% of our deposits were insured at quarter end. As a result of this growth in high quality deposits, we have benefited from a lower cost of funding for our loans. Our deposit funding also increases our flexibility to capture additional net interest margin [NIM] and optimize returns, a critical advantage in light of notable macro uncertainty. SoFi Bank, N.A. generated $63.1 million of GAAP net income at a 17% margin.\" Source: SoFi Q2 2023 Earnings Press Release   For FY-2023, SoFi increased its revenue guidance from $1.955-2.020B to $1.974-2.034B and raised the adj. EBITDA guide from $268-288M to $333-343M [adj. EBITDA margin: +17%]. While SoFi's revenue growth is set to slow down significantly in the back half of this year based on the current trajectory of deposit growth and loans held on its balance sheet, I think SoFi can continue to outperform expectations in upcoming quarters if the ABS (asset-backed securities) market opens up as interest rates stabilize.   SoFi Q2 2023 Investor Presentation As we know, the recent strength in SoFi's business has been driven by the structural benefits of its bank charter (attained in 2022), which has allowed the fintech company to raise deposits at low-interest rates [reducing capital costs for its lending activity]. As of Q2 2023, SoFi's deposit base stood at $12.7B, and this deposit base is providing SoFi the flexibility of holding loans on its balance sheet for a longer duration (as necessitated by the ongoing freeze-up in credit markets due to rapid changes in interest rates). In Q2, SoFi's \"Loans Held for Sale\" rose to $18.2B (up from $15.9B in Q1 2023). With SoFi's total loan originations of ~$4.4B in Q2, SoFi sold nearly $2B of loans from its balance sheet during this quarter. Given this sale activity, the ABS market seems to be opening up (unfreezing), and I view this data as a big positive for SoFi.   SoFi Q2 2023 Investor Presentation  SoFi Q2 2023 Investor Presentation Now, SoFi has the balance sheet strength to hold onto these loans to earn interest income; however, getting rid of these loans via securitization will unlock faster revenue growth in its lending business. While personal (unsecured) loans piling up on SoFi's balance sheet has been highlighted as a massive risk for SoFi, the strict credit standards at SoFi (Personal loan: Avg. FICO score is ~770, Annual Income >$170K) should ensure that the default (delinquency) risk remains low in the future. As per SoFi's management, annualized net charge-offs on its personal loans book declined quarter-over-quarter to 2.94% in Q2 2023. In my view, SoFi's business momentum is incredible, and financial performance in the second half of 2023 is likely to remain strong given the impending end of the Student loan moratorium is expected to drive a flurry of refinancing activity that will boost SoFi's student loan refinancing business. According to SoFi's management, the company is set to become GAAP profitable in Q4 2023, and I think that would be a remarkable feat to end this incredible year on a high note. With all three of SoFi's segments set to reach adj. EBITDA profitability by the end of 2023, I think our cross-buying-centered investment thesis for SoFi has never been stronger. In summary, SoFi's Q2 2023 report was yet another conviction booster. However, let's evaluate SoFi's long-term risk/reward before making an informed investing decision. SoFi's Fair Value And Expected Return To determine the fair value and expected return of SoFi, we will use TQI's Valuation model with the following assumptions:   TQI Valuation Model (TQIG.org) According to TQI's valuation model, SoFi is now worth $13.99 per share (up from my previous estimate of $11.75 per share). With SOFI trading at ~$11.40 per share, I see another ~20-25% upside to fair value from current levels. Hence, investors buying here are getting a sizeable discount on SOFI. Now, let's consider the long-term reward potential by looking at a range of expected outcomes for SOFI assuming an exit multiple of 15-25x P/FCF:   TQI Valuation Model (TQIG.org) In the base case scenario, SoFi's stock could be trading at $26.78 per share five years from now, which would imply a ~18.63% CAGR return from current levels. While these projected returns are slightly lower than our investment hurdle rate of 20% for high-growth stocks, they remain well above long-term equity market returns of ~10%. Given conservative modeling assumptions, I still think SoFi is a decent buy at $11.40 per share in light of Q2 earnings. Key Takeaway: I rate SoFi a modest \"Buy\" at $11.40 per share, with a preference for staggered accumulation using a 6-12 month DCA plan.  As always, thank you for reading, and happy investing. Please feel free to share any questions, concerns, or thoughts in the comments section below.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":204268263645392,"gmtCreate":1690903414365,"gmtModify":1690903417882,"author":{"id":"3569229581224836","authorId":"3569229581224836","authorIdStr":"3569229581224836","name":"Rurulz","avatar":"https://static.tigerbbs.com/09fba295568949361ca317d20e5a600b","vip":1,"crmLevel":3,"crmLevelSwitch":1,"idStr":"3569229581224836"},"htmlText":"Great ariticle, would you like to share it?","listText":"Great ariticle, would you like to share it?","text":"Great ariticle, would you like to share it?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/204268263645392","repostId":2356941672,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":0,"commentSize":1,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.3","shortVersion":"4.28.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2356941672"}