$SoFi Technologies Inc.(SOFI)$ surged nearly 20% on Monday, due to the company's beated Q2 earnings and an upgraded full-year guidance.
As one of the major beneficiaries of the suspention of student loan bill, SoFi is also benefiting from lower financing rates and increased deposit and loan amounts. As of the closing on July 31st, the company's forward EBITDA multiple for 2024 stands at 21 times, but there is still a significant factor constraining the company's valuation level.
Performance Overview
The company added over 584,000 new members in Q2, surpassing a total of 6.2 million, representing a 44% YoY growth.
Regarding financial products, the company added 847,000 in Q2, marking a 43% YoY increase.
Deposits also saw substantial growth, with the total reaching $12.7 billion, a 26% increase from $10.1 billion on March 31, 2022.
Total revenue reached $488.8 million, a 37% YoY growth, exceeding the market expectation of $473.5 million and surpassing Q1's $460.2 million.
Adjusted EBITDA amounted to $77 million, higher than the previous quarter's $75.7 million and significantly higher than the $20.3 million from the same period last year.
Additionally, the company raised its full-year guidance,
Revenue for 2023 to be between $1.974 billion and $2.034 billion, surpassing the market expectation of $1.99 billion.
The adjusted EBITDA outlook also improved, ranging from $333 million to $343 million, higher than the market expectation of $289 million.
Moreover, the management anticipates achieving quarterly GAAP profit in Q3. However, stock-based compensation and depreciation expenses in Q3 and Q4 are expected to be slightly higher than Q2.
Investment Highlights
Personal loan issuance continues to show robust growth, with Q2 personal loan originations amounting to $3.7 billion, a YoY increase of nearly $1.3 billion, with a growth rate of 51%. On a sequential basis, the growth rate reached 27%, which is quite impressive. Although there was a decline in student loans and home loans in Q2, the suspension of student loan measures will end in August, which is a significant positive for SoFi unless there are further actions.
Housing loans follow the industry's trend, with the high-interest rate environment limiting some growth pressure. However, the real estate sector is not as weak as expected, and overall, Q2 demonstrated impressive growth as the interest rate hike cycle approached its end. Finally, the stock is reflecting the opportunities in this area.
On the other hand, financial services product growth surpassed expectations, driven by SoFi Invest and SoFi Money products. SoFi Money added 280,000 accounts, and SoFi Invest added 105,000 accounts, resulting in a total of approximately 2.5 million financial service products, a 47% YoY increase, generating $98.1 million in revenue, a YoY growth of 223%. Considering the growth in new products and new members, we expect this trend to continue.
Membership growth remains robust, and the company offers an attractive incentive plan with an annual interest rate of up to 4.4% to attract new members. Deposits are the foundation of all other loan businesses. The company's profit margin growth has not yet caught up with revenue, and further expense reduction is needed to achieve net profit. As of now, the momentum of EBITDA growth is strong, and it is expected to reach new highs within the year.
Valuation
SOFI's valuation cannot be evaluated based on traditional banks valuation metrics such as ROTCE due to the following two reasons:
1. The company's higher growth rate.
2. The significant impact of the high cost brought by SPAC listing, which has a substantial impact on its debt.
If we calculate based on the market cap/EBITDA multiple, the expected EBITDA for the fiscal year 2024 is $512 million, which yields a multiple of 21 based on the closing price on July 31st. However, if we calculate based on the enterprise value/EBITDA, the multiple increases to 29.
Although the profit expectation will further increase after the decline in interest rates, supporting the valuation further, the previous debt is still a hidden risk for the valuation. Of course, the recent upward trend in the stock price mainly reflects positive expectations for the company's business and the closing of many accumulated short positions, which naturally contributes to its short-term momentum.
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