Shouldn’t Wall Street be celebrating after $SoFi Technologies Inc.(SOFI)$ reported a better-than-expected set of earnings on Tue, 29 Oct 2024 ?
Unfortunately, it did not.
By the time 4pm came around, the stock price lost about -7%. (see above)
Q3 2024 Earnings.
According to FactSet:
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Earnings per share (EPS) : $0.05 per share vs $0.04 expected vs -$0.29 (Q3 2023), a +117.24% YoY gain.
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Adjusted net revenue: $689 million vs analysts’ expectations of $632 million vs $530 million (Q3 2023), a +30% YoY gain.
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Total deposits : Grew to $24.4 billion (Q3 2024) vs $15.67 billion (Q3 2023).
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New customers: Added > 756,000 new customers and now has nearly 9.4 million customers, a +3.4% YoY growth. (see below)
SoFi’s CEO Remarks
CEO, Anthony Noto has remarked:
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Q3 2024 was the strongest quarter in SoFi’s history.
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Quarter’s results reflect how SoFi is consistently achieving durable growth, how its innovation and brand building are attracting more customers & clients onto the platform.
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SoFi’s Financial Services and Tech Platform segments now make up a record 49% of SoFi’s adjusted net revenue, up from 39% a year ago.
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Its original “loan” business continues to thrive. Volume within the lending segment rose +23% YoY, with personal, student, and home loans up +26%, +3%, and +38%, respectively.
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2025 will be the first year in which we don’t see headwinds.
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Foresee a declining interest rate environment, a stable economy, that is going to bode well for SoFi’s businesses.
More importantly, SoFI also raised its FY 2024 forecasts for adjusted net revenue, earnings per share, and other metrics.
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It (now) expects adjusted net revenue between $2.535 billion and $2.55 billion vs analysts’ expectations of $2.46 billion, according to FactSet.
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Earnings per share to be between $0.11 and $0.12 per share vs analysts’ estimates of $0.10 per share.
So, Why SoFI Fell ?
Despite a quarterly result that exceeded (EPS & Net revenue) expectations. SoFi fell by -7% by the time market closed.
According to Mizuho, Securities analyst, Dan Dolev, who rated SoFi as “Outperform” with a $14 price target:
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He believes US market bears are confused, as whatever worries are unmerited.
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In the past, there were concerns that SoFi couldn't grow because it didn't have enough money (capital concerns).
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SoFi is addressing it by expanding its lending capabilities via its loan platform business.
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This allows SoFi to scale originations in a fee based, capital light low-risk manner with strong ROE (return on equity) & returns.”
The latest - on 14 Oct 2024, SoFi announced a $2 billion deal with Fortress Investment Group to offer personal loans. (see above)
Most of the money SoFi makes from these deals will be counted as financial services revenue.
My viewpoints: (mine only)
(1) Unique customer relationship.
SoFi has a “unique” relationship with its customers.
Most began when the customer was still a student, taking up a student loan with them.
Over time, the service grows organically to include banking, insurance, and even investment solutions, all accessible through SoFi’s single online platform.
This strategy actually boosts “bank-customer” resiliency as seen in CEO’s remark on SoFi’s financial services and technology platform revenue growth. (see above)
(2) Falling Fed Funds rates.
With the Fed initiated a first interest cut in September 2024, the risks associated with a prolong high interest rate has been averted.
US Fed Reserves - September 2024 dot plot
Based on the Fed’s latest September 2024 dot plot, there will be more interest cuts in the pipeline well into 2027. (see above)
With that, (1) slowing of economic activity, (2) people losing their jobs and (3) loan losses on the rise, diminished from a primary to secondary concern.
With so much upside to SoFi, I remain cautiously optimistic about this bank that went public through a merger with a SPAC (Social Capital Hedosophia Holdings Corp).
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Do you think SoFi will continue to grow from strength to strength ?
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Do you think SoFi will be able to meet its upwards revised FY 2024 targets ?
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