Future of Finance: SOFI is the Key ?
$SoFi Technologies Inc.(SOFI)$ was a standout in 2023, gaining +116%.
In 2024, that has all gone downhill, with shares fallen -25% YTD.
What changed?
In January 2024, SoFi posted a fabulous Q4 2023 report that seems to have set off the decline.
Is this a company to steer clear of?
Or is this a big buying opportunity hidden in plain sight?
Q4 2023 report
SoFi reported excellent Q4 results with continued growth and newfound profitability.
Revenue: was $594 million, that was +35% gain YoY.
Net income: was $47.91 million, that was +219.76% gain YoY.
Earnings per share (EPS): was $0.03, that was +160% gain YoY.
An even “brighter” note was its continual increases in accounts and products.
SoFi added +585,000 new accounts, a +44% increase YoY. (see above)
For FY 2023, total accumulated membership grew to 7.5 million.
Product wise, it added 695,000 new products in Q4 2023.
Bringing an accumulated total of 11.1 million products in 2023, a +41% increase. (see above)
For SoFi’s core “lending” segment, it bounced back after:
Getting hit by high interest rates.
Student loan repayment moratorium.
Lending segment revenue increased +10% YoY and its net interest income increased +81% YoY.
Personal loans, student loans, and even home loans all increased in Q4.
SoFi’s Game plan.
SoFi's strategy is to attract customers:
With easy-to-use products.
High interest rates.
Cross-sell customers new products and services.
It has also expanded from lending products to the full gamut of financial services, including:
Credit cards.
Bank accounts.
Investing tools.
SoFi is not straying too far from its origins as a student loan cooperative, targeting students and young professionals.
At the same time, it offers a broad and expanded range of products for this population.
About 90% of deposits are from direct deposit members, driving a cycle of deposit growth and increasing net interest income.
With its customers predominantly young and in relatively good jobs, SoFi has positioned itself to benefit from building long-term relationships with this growing customer base.
The anticipated bomb?
Apart from a fantastic Q4 results, management is optimistic about its first quarter and 2024 results as well. (see below)
Unfortunately, one of SoFi’s new development had investors running for the hills. (see below)
On 05 Mar 2024, SoFi fell by -11.5% on news that it was cashing in on its stock market gains and taking on $750 million in new unsecured convertible senior notes (debt).
The notes will be unsecured, unsubordinated obligations of the company, with an accrue interest rate of 1.25% pa, payable semi-annually in arrears, beginning 15 Sep 2024.
If SoFi is progressing “well”, why is it looking to raise cash now?
The notes are looking especially suspicious given that interest rates are supposed to start easing.
Management said that most of the cash would be to redeem 12.5% high-interest Series 1 preferred stock. So, it does not look like it's as bad as investors might think at first glance.
Other reasons why investors are braking on SoFi:
Stock price has risen quite high.
It is still a financial company that has exposure to interest rate volatility.
Just for that, investors won't necessarily award it a high valuation.
Along those lines, SoFi is a bank, even though it is also a fintech.
Bank stocks have lower valuations than other stocks.
Investors may be realizing that.
As SoFi becomes profitable, it needs to be compared with other bank stocks and valued more similarly.
Taking everything into considerations, SoFi has been a compelling story, with incredible growth potential.
It is resonating with its core customer base and capturing market share.
This looks like a great opportunity to buy shares on the dip.
My viewpoints : (mine & mine only)
To me the post was a little too “feel good”.
Coverage of the newly issue “debt” notes was superficial.
Of the possible maximum $750 million raised, SoFi will use about $78.8 million (or 10.51%) of the money to cover the cost of a financial agreement, with the buyers.
The “lop-sided” agreement lets the buyers potentially profit from SoFi's stock price going up and limits how much they could lose if & when the price goes down.
Where does that leave SoFi’s shareholders ?
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Do you think SoFi’s shareholders is holding the short end of the debt issue notes?
Do you think SoFi will be able to better its earnings in Q1 2024?
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Great article, very insightful
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