SoFi Technologies: Strong Growth Should Be Rewarded Eventually

seekingalpha04-23

SoFi Technologies' shares have dropped 24.1% since late December, underperforming the S&P 500.The company continues to show robust growth, with net revenue increasing by 34.7% in the final quarter of ...

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Some require patience. Sometimes, it can take months or even a year or two for an opportunity to really start to play out. In the short term, this can be rather painful. As an example, we need only look at SoFi Technologies, Inc.. Back in late December of last year, I wrote a bullish article about the company. I found myself impressed with the continued growth of the enterprise. I acknowledged at the time that the firm was having difficulty in generating profits. However, cash flows were improving and there was no sign that growth was about to ease up. This led me to rate the company a 'buy' to reflect my view at the time that shares would likely outperform the broader market moving forward.Much to my chagrin, the opposite has transpired. Shares are actually down 24.1% since then, at a time when the S&P 500 has jumped by 8.1%. Many investors would have called it quits by now. And for those focused on the short term, that might not be the worst idea. But when you look at more recent data that management has come out with, and you factor in guidance for the current fiscal year, it becomes obvious that the long-term picture for the business is positive. While I wouldn't go so far as to upgrade the company further, I do not believe it was a mistake, when looking at it from a long-term perspective, to rate the company a 'buy'.Robust growth continuesUsually, when shares of a company drop as much as what we have seen from SoFi Technologies, it's not difficult to imagine that the decline has been because of fundamental reasons. But that hasn't been the case here. By pretty much every measure, SoFi Technologies continues to do quite well. Take high-level data for the final quarter of the 2023 fiscal year as an example. Net revenue, which comprises net interest income and non-interest income, managed to come in at $615.4 million. That's a whopping 34.7% increase over the $456.7 million generated one year earlier. This was in spite of the fact that non-interest income declined from $248.1 million to $225.8 million as loan origination, sales, and securitization revenue plunged from $131.3 million to $82.9 million.Author - SEC EDGAR DataThe growth of the company was driven by multiple things. Loan and securitization revenue nearly doubled from $300.3 million to $599 million. Meanwhile, deposit-related revenue skyrocketed from $40.7 million to $182.6 million. Some of this improvement was because of a slight uptick in the company's net interest margin from 5.94% to 6.02%. However, the biggest contributor ended up being a growth in overall assets. During the final quarter of the year, average interest-earning assets totaled $25.7 billion. That's well above the $14.1 billion reported at the same time one year earlier.SoFi TechnologiesThis kind of growth has been made possible by a rather significant increase in the number of customers the institution has. By the end of the year, the company boasted 7.54 million members. That's what it calls its customers. In addition to being well above the 5.22 million reported one year earlier, it represented an increase of 585,000 compared to the 6.96 million members the company had in the third quarter of 2023. A rise in members also results in an increase in products. During the quarter, the company had 11.14 million products. In case you haven't researched the company in depth, a product refers to the number of particular features or services that a member is using. These are broken up into two separate categories.SoFi TechnologiesThe first would be lending products such as personal loans, student loans, home loans, and more. During the final quarter of the year, the company had 1.66 million lending products. That was up about 24% year over year and was up from the 1.59 million seen in the third quarter of the year. Financial services products, meanwhile, are the second category. Specific offerings such as SoFi Money checking and savings accounts, its SoFi Invest mobile investing platform, and more, are included. During the final quarter of the year, the company boasted 9.48 million financial services products. This was up a whopping 45% from the 6.55 million the company had one year earlier. It also beat out the 8.85 million seen at the end of the third quarter of last year.SoFi TechnologiesAnother measurement of growth would be the number of accounts on its technology platform. This part of the company involves a suite of offerings for customers, and it's largely centered around banking and other financial activities. The specific offerings in question include a cloud-native digital platform, as well as a banking platform. Recently, the company even rolled out an AI-based virtual assistant for customers of various financial institutions, as well as a real-time payment risk platform to mitigate fraud. By the end of 2023, this part of the company had grown to have 145.4 million accounts on it. This was up nicely from the 136.7 million accounts the company had in the third quarter of the year. And it dwarfed the 130.7 million reported for the final quarter of 2022.SoFi TechnologiesThe growth in revenue for the institution also helped the company on the bottom line. The firm went from a net loss of $50.2 million in the final quarter of the year 2022 to a profit of $24.6 million in the final quarter of 2023. As the first chart in this article illustrates, cash flow figures also improved. The most important, in my opinion, for investors to focus on would be adjusted operating cash flow, which strips out changes in working capital, and EBITDA. Both of these were positive in the final quarter of the year and were up compared to the same time in 2022.Author - SEC EDGAR DataFor 2024, management has some high expectations. Most notably, the company is finally forecasting profitability. As you can see in the chart above, which shows financial results for 2022 and 2023 as a whole, the company has generated net losses in recent years. But now, management believes that net profits will be between $95 million and $105 million for 2024. When it comes to profitability outside of net earnings, the company also said that EBITDA will likely come in at between $580 million and $590 million. At the midpoint, that would translate to a rather significant increase over the $431.7 million generated in 2023. That's a gain of 35.5% year over year.SoFi TechnologiesWhile it is clear that the company is focusing on improving its bottom line, the big driver toward profitability will likely be coming from a growth in the number of members using the platform. Management is forecasting 2.3 million additional members in 2024. That would be about 30% growth in the course of a year. Longer term, the firm believes that growth will continue as well. They believe that, from 2023 through 2026, revenue will increase at an annualized rate of between 20% and 25%. I understand that many investors are worried about interest rate cuts. In my first article on the company last year, there were multiple statements about the impact that falling interest rates will have on the company.While it is true that this will hurt the firm, there are two things that it has going for it. The first is that the path toward cuts is happening slower than anticipated. At the start of this year, it was expected that we would see three rate cuts throughout the year. But with the recent inflationary data that just came out, it's likely we won't see a single cut until at least September. The second thing that it has going for it is that asset growth should more than compensate for falling rates. Based on a rough and dirty calculation, a 20% increase in both interest-earning assets and interest-bearing liabilities would still result in net interest income for the institution growing by around 25% in 2024 even if the net interest earned on interest-earning assets fell by 2% while the cost of interest-bearing liabilities stayed the same.TakeawayTo be perfectly honest with you, I am amazed at how shares have performed as of late. While the company could face some issues moving forward, its overall trajectory is positive. Growth continues, and I see no signs of that changing in the foreseeable future. The company is finally at the point of achieving profitability, as demonstrated by the most recent quarter and by management's forecasts for 2023. Add on top of this the expectation of continued cash flow growth, and I would argue that this still makes for a clear 'buy' at this time.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":4,"commentSize":0,"repostSize":0,"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":"4.22.4","shortVersion":"4.22.4","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/2429920801"}