To The Moon

$SoFi Technologies Inc.(SOFI)$

We've just experienced one of the worst weeks for the S&P in a while, which helps explain why there's so much fear in the market right now. Many investors are starting to feel uncertain, especially about the near term. Today, we’ll focus on SoFi stock, which has risen about 63% over the past 12 months. However, it’s down 9% over the past month and 6% year-to-date. So, the question is: given that SoFi is currently trading in the lower end of its 52-week range, is this a good time to consider adding for long-term growth, or should we be thinking about selling and exploring other opportunities?

For those who are new to SoFi, it’s a fintech company offering a variety of financial services, including loans, banking, investing, and credit cards. They also provide student loan refinancing, personal loans, mortgages, high-yield savings accounts, and an investment platform for stocks, ETFs, crypto, and retirement accounts. We'll also look at their most recent quarterly earnings, where their lending segment was a major contributor to top-line revenue, growing 18% year-over-year. Their financial services segment, a rapidly growing part of the business, saw a substantial 84% increase.

We’ll also cover other key aspects of the company, such as membership growth. SoFi’s membership has been expanding at an impressive rate, with a compounded annual growth rate of 53%. It’s now surpassed 10 million members, compared to 7.5 million in the same quarter last year.

Earning Overview

In their most recent earnings report, SoFi beat earnings expectations, though by just one cent, and exceeded revenue projections, which is always a positive sign for Wall Street. The company has faced several downgrades recently, with analysts like Bank of America in December suggesting that SoFi’s stock was priced to perfection. They downgraded the stock to “underperform,” maintaining a $12 price target, which is above the current price. Other analysts, such as one at the beginning of the year, voiced similar concerns, though they raised their price target to $8, suggesting investors should only consider adding if the stock drops significantly below that level. Goldman Sachs also set their price target at $9.50, and Morgan Stanley, after reviewing the company’s earnings, lowered their target to $6.50 from $7, indicating their belief that the stock is overvalued.

Fundamental

We’ll dive into SoFi’s latest investor presentation, which outlines their vision of becoming a one-stop shop for financial services. Their growth across all areas is strong, with membership up 53% annually and product additions increasing by 55% year-over-year, now totaling over 14.7 million. Although growth is slowing slightly, it remains strong, and the company’s revenue mix is increasingly shifting toward fee-based, capital-light services, which are more scalable and attractive to investors.

Their revenue growth has been impressive, with a forecasted 26% increase in 2024. They’ve also been improving their operating margins, with their EBITDAR margin rising from 3% four years ago to 26% today. The company reported its first full year of profitability in 2024, a major milestone. This is expected to continue in 2025, with further improvements in net income margin and membership growth.

Despite some analyst downgrades, SoFi has consistently raised its guidance, surpassing even the highest expectations. This trend could indicate that Wall Street expects SoFi to continue outperforming and potentially revise their targets upward. For 2025, SoFi forecasts revenue growth between 23% and 26%, with margins expected to stay strong at 26%, and net income margin around 9%. They also expect membership to grow by 28% in 2025.

Cash Flow

What this essentially means is that Sofi is gradually improving its margins and enhancing operational efficiencies—qualities we find very attractive. However, their cash flow from operations over the past year has been negative at -$1 billion, indicating that they’ve been burning through cash. In contrast, the sector’s cash flow, though low at $142 million, is still positive. Over the past five years, Sofi has burned through an average of -$4 billion, so while this burn is decreasing, we hope to see it turn positive in the next year or two.

While we typically want to see free cash flow grow over time, Sofi's has been negative for most years, though they are expected to be free cash flow positive in the next 12 months. Their sales growth is strong, with a reported 28% in 2024, and they have guidance for FY25 around 23-26%. While we hope to see consistent growth from 2025 onward, it’s crucial to keep an eye on how this impacts their bottom line, as it has been inconsistent in the past.

Institutional

Looking at institutional activity, Sofi has 38% institutional ownership, with $771 million in sales from these institutions. Interestingly, institutions have been buying more than selling, which could be surprising since analysts are suggesting a "sell." This might not be surprising, though, as analysts sometimes downplay a stock's performance to purchase it at a lower price. Insider sales make up about 3% of ownership, with $553 million in sales, and while insiders are selling shares, the amounts are relatively small. One EVP recently sold 9,000 shares for $142,000.

On a broader economic scale, Sofi benefits from lower interest rates because they reduce borrowing costs, encouraging more people to take out loans for student refinancing, personal use, and mortgages, which increases their revenue. Sofi also benefits from lower interest rates as it makes their own borrowing cheaper, improving their product margins.

Is SoFi a Buy After a 10% Decline? Let's Find Out

Over the past month, SoFi has seen a sharp decline of more than 10%, reflecting the broader market turbulence and investor concerns surrounding its 2025 earnings guidance. This has led many to wonder—does SoFi present a buying opportunity at its current levels? Let’s break it down.

To break this down: SoFi’s loan platform business involves originating loans for institutions that lack the member base or underwriting capabilities that SoFi possesses. Typically, when SoFi originates loans for itself, they remain on its balance sheet until they are either held or sold. However, with the loan platform business, these loans never touch SoFi’s balance sheet. Instead, SoFi underwrites them and sells them directly to other institutions, mitigating risk.

Now, with this securitization, SoFi is selling loans—not from its own balance sheet, but from loans it underwrote for other institutions—to an asset manager. These loans are then packaged into securities, similar to fixed-income products, and sold to investors. This means SoFi is not just originating loans; it is also acting as an investment advisor, leveraging its vast partner network to facilitate these transactions.

Why This Is a Big Deal

• The $700 million securitization represents a substantial portion of the $2.1 billion in loans SoFi originated in 2024. This suggests a growing demand for SoFi’s loan platform business.

• Financial institutions—such as insurance companies, asset managers, and banks—aren’t just relying on SoFi for its underwriting capabilities or member base. They’re also utilizing SoFi’s extensive network to sell loans into capital markets.

• This is the first securitization of its kind for SoFi’s consumer loan program, providing significant liquidity for loan platform business partners and fueling continued investment.

SoFi’s Recent Performance

SoFi, which had outperformed the market for two consecutive years, is now lagging behind the S&P 500. The recent drop in its stock price can be attributed to investor reactions to its earnings guidance for 2025. The company has projected earnings per share (EPS) between $0.25 and $0.27, slightly below consensus estimates.

CEO Anthony Noto has emphasized that this conservative guidance reflects SoFi’s commitment to long-term growth rather than short-term profitability. He expects these strategic investments to drive an annual revenue growth rate of 20% in the near future.

Key Growth Drivers

1. Fee-Based Revenue Surge

   Fee-based revenue increased by 63% year-over-year in Q4, now comprising 40% of total revenue.

   This revenue stream is expected to be a key driver of future growth.

2. Strong Membership Growth

   SoFi’s member base expanded by 34% YoY, surpassing 10 million members by the end of 2024.

   40% of new members engaged with additional products within 30 days of joining, creating cross-selling opportunities.

3. Resilient Lending Business

   Despite market challenges, SoFi’s lending segment outperformed expectations, with an 11% increase in revenue last year.

   Delinquency rates have improved following a peak in Q1 2024.

4. Loan Platform Business (LPB)

   SoFi originated $2.1 billion in loans for third parties last year, generating risk-free, fee-based income.

   This strategy expands SoFi’s reach while reducing balance sheet exposure.

Future Growth Catalysts

• Direct Express Program: SoFi was selected by the U.S. Department of the Treasury to manage the Direct Express program, a prepaid debit card service for 3.4 million federal benefit recipients. The financial impact will materialize in 2026.

• New Major Partnership: SoFi is integrating with a top U.S. financial services company, which could become a top-10 revenue contributor once fully onboarded.

• Revised 2026 Growth Outlook: SoFi now expects revenue growth above the previously guided 20-25%, with an EPS forecast between $0.55 and $0.80.

Market Sentiment & Valuation

In terms of valuation, SoFi is currently trading at a forward P/E of 56, which is much higher than the sector average of 11.3. They also have a premium on other metrics, such as price-to-sales (83% premium) and price-to-book (89% premium). However, given their impressive growth rates—28% revenue growth year-over-year, 22% expected growth in the next 12 months, and a 41% increase in EBITDAR—they certainly deserve some of that premium. However, with profitability slightly trailing the sector, investors will need to carefully weigh the growth potential against the current premium.

Analysts maintain a cautious outlook on SoFi, with a consensus “Hold” rating. The average price target is $13.89, below current levels, while the highest target of $20 suggests an 8% upside from February 26.

Concerns over valuation persist:

• SoFi’s tangible book value is just $4.47 per share, which some analysts cite as a sign of overvaluation.

• A forward P/E ratio of 55x appears elevated compared to traditional financial firms.

• However, by 2026, SoFi’s projected P/E ratio could fall to around 21x, making it more attractive to long-term investors.

One critical metric to consider is Price-to-Sales (P/S):

• Historically, SoFi’s P/S ratio ranged between 2.7 and 6.

• At a current P/S of around 6, a 2x return over the next few years is feasible, suggesting a potential stock price range of $20-$30.

Investment Strategy: Is Now the Time to Buy?

SoFi has recently pulled back from a high of $18.45. The latest support level is around $13, with a potential downside to $11 if market conditions deteriorate. However, given the company’s strong fundamentals, growth trajectory, and historical ability to exceed guidance, this dip presents a compelling buying opportunity.

In terms of valuation, we’ve derived an intrinsic value of $18 based on a discounted cash flow (DCF) model with a 12% growth rate. This translates to a 27% upside at the current price of $14.47. If Sofi’s growth rate is slower, say 10%, the upside is around 12%. But if they perform better than expected, with growth at 12%, the potential upside increases to 27%. Using a margin of safety of 10%, the price would be closer to $16-$17, offering a 20% margin of safety.

Conclusion

SoFi remains a solid long-term investment due to its expanding fee-based revenue, increasing membership, and strategic partnerships. CEO Anthony Noto has consistently under-promised and over-delivered, positioning the company for sustained growth.

For long-term investors, this recent pullback may be an opportunity to accumulate shares at a discount before the stock resumes its upward trajectory.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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