To The Moon

$SoFi Technologies Inc.(SOFI)$

Sofi's Performance and Growth: A Comprehensive Overview

Yesterday marked the worst day for the stock market since 2022, with broad declines across the board. When we look at the performance over the past week, the trend remains the same. Specifically, the financial sector has been hit the hardest, with almost every company in the space seeing significant drops. Zooming out over the last month, the situation doesn’t change, and so far, 2025 hasn’t been a great year for the market. The financial sector is especially struggling, with nearly every company down by double digits. The Fear and Greed Index is also at one of its lowest points in recent years.

Today, we’re focusing on Sofi, which is trading around the $11 mark. Despite being up 43% over the past year, Sofi has dropped 28% year-to-date, and is currently sitting in the lower end of its 52-week range. It has just one buy rating from Seeking Alpha. So, the question is, is this a good time to buy, hold, or should we consider selling and potentially buying back at a cheaper price?

Sofi's Vision and Expansion

For those unfamiliar with Sofi, they are a fintech company offering a range of financial products, including loans, banking, investing, and credit cards. Originally, Sofi started with student loan refinancing but has since expanded into a full-service digital bank. The company now provides stock trading, cryptocurrency investing, and financial planning tools, along with membership benefits.

Sofi’s vision is to become a one-stop-shop for all financial needs, covering lending products like personal, home, and student loans, as well as other financial services, such as Sofi Money, investing, and credit cards. The company is seeing strong growth, with membership numbers recently surpassing 10 million, up from 7.5 million in the same quarter last year, marking a substantial increase. In its most recent quarter, Sofi reported a 19% increase in revenue year-over-year, with Financial Services growing 84%. Memberships are up by 34%, and the number of products offered has increased by 32%.

Financial Performance and Institutional Support

Looking at contribution profit, we see a positive shift. Not long ago, in 2022, Financial Services was unprofitable, but now it has turned profitable and is one of Sofi’s fastest-growing revenue streams. The company is also gaining institutional support, with institutions owning 38% of shares, and more buying than selling in the last year, continuing in Q4.

However, Sofi has faced some criticism from analysts. For instance, Bank of America downgraded the company in December 2024, arguing that it was priced to perfection with limited upside potential and dropped their rating to underperform with a target price of $12. More recently, another analyst downgraded Sofi, suggesting the company’s path ahead was difficult and estimating the stock to be worth around $8, down from a previous target of $7.

Valuation and Growth Prospects

From a valuation perspective, Sofi does trade at a premium across various metrics. Its forward P/E ratio of 42 is well above the sector average of 10, representing a 31% premium. Whether looking at price-to-sales or price-to-book ratios, Sofi continues to trade at a significant premium compared to the sector. While trading at a premium isn’t necessarily a negative, it does imply the company needs to grow at a faster rate and become more profitable than the sector to justify the valuation.

Looking ahead, Sofi expects strong growth in three out of the next four quarters, with a 100% track record of meeting its earnings-per-share (EPS) target. This provides confidence that the company can hit its targets through December 2025, even with the drop in 2025 so far. Sofi’s membership and product numbers are also growing at an impressive rate. Memberships have increased by 53% year-over-year to 10.1 million, and products have grown by 53% as well, reaching 14.7 million. The company is diversifying its offerings, with financial services growing rapidly. Money is up by 51%, Relay is up by 39%, and lending products are also growing at double-digit rates. The proportion of financial services within Sofi’s business is increasing, which is important for long-term growth and shareholder value.

Sofi's Strategic Shift and Future Growth

Sofi is looking to transition its business model toward a more fee-based and capital-light structure, a positive move for any company seeking to move away from capital-heavy operations. As we’ve seen, their Financial Services revenue has been steadily increasing, growing from 25% of their total revenue mix in 2021 to 47% now. Additionally, the company is expanding its technology platform accounts, which aligns with the rapid growth trend typical for Sofi—double-digit growth across multiple areas. However, it's important to remember that the growth story may not last indefinitely, and we must factor in potential slowdowns. This is why maintaining a margin of safety is essential.

Despite this, Sofi has shown impressive numbers in recent years. In the most recent financial year, the company increased its top-line revenue by 26%, and its EBITDAR margin has grown significantly, from 3% in 2021 to 26% now. Furthermore, for the first time in 2024, Sofi reported positive adjusted net income with a 9% margin, signaling its first full year of profitability. If the company continues on this trajectory, it could improve across all financial measures.

Guidance and Growth Expectations

One thing to note about Sofi is that while their guidance should be taken with caution—since they revised their revenue expectations twice in 2024—the actual results have been stronger than originally anticipated. They initially expected a 14-16% revenue growth, later revising this to 22-23%, but the final result came in at 26%. This indicates that the company might exceed its 2025 guidance, which forecasts a 23-26% revenue growth and an EBITDAR margin of 26%. They also anticipate member growth to continue, with an expected increase of around 2.8 million members, or 28% from 2024.

Sofi’s growth rate is impressive. Over the past 12 months, they grew at 28%, compared to the sector’s 6%. Over the next 12 months, Sofi is expected to grow at 22%, also outperforming the sector. Additionally, their EBITDAR growth is expected to reach 41%, again surpassing the sector. This strong growth justifies their premium valuation, but as mentioned earlier, it's important to keep an eye on the slowing growth trend in the long term.

Profitability and Cash Flow

In terms of contribution profit, all the segments are now positive. A few years ago, Financial Services and the lending business were both negative, but now they’re contributing to the overall profit. This shows that the business is firing on all cylinders. While this year is about investing and strengthening the business, there’s also potential for crypto to help accelerate growth.

For its gross margin, which is 83%, well above the sector average of 59%, and even higher than its 5-year average of 78%. Their bottom line has improved to a 19% positive margin, which is below the sector’s 23% but a significant improvement from their previous 5-year average of -23%. For the first time in 2024, Sofi achieved profitability, as it was previously losing money. Cash from operations is currently negative at -$1.12 billion, but this is an improvement from the previous 5 years when they were losing more at -$4 billion.

The Return on Equity (ROE) and Return on Invested Capital (ROIC) are also worth considering. Ideally, investors look for a minimum of 10% in these metrics, but Sofi has been reporting losses in recent years. However, with the potential for growth, it’s hoped that these numbers will improve in the future.

Impact of Fed Rate Cuts on Sofi's Performance

Another key factor to consider is the Federal Reserve’s policy, particularly regarding interest rate cuts. Currently, there’s an expectation of rate cuts in June, but this can change rapidly. Rate cuts are typically beneficial for companies like Sofi because they reduce borrowing costs. For Sofi, this makes loans such as personal and student loans more attractive to customers, potentially boosting loan origination volumes. Lower interest rates also decrease Sofi’s funding costs, improving their net interest margin and profitability. Additionally, rate cuts could increase market optimism and investor interest in fintech and growth stocks, while also boosting consumer spending and investing activity on Sofi’s platform, further enhancing their revenue.

Valuation and Intrinsic Value

When it comes to Sofi’s valuation, we’ve used a Discounted Cash Flow (DCF) model to estimate its intrinsic value at just under $16. Based on a 10% growth rate moving forward, with a discount rate of 8%, the present value of future free cash flows and terminal value suggests an equity value of $15.87, indicating a 44% upside. At a discount rate of 8%, the price comes to $14, showing a 26% upside, while at a 12% discount rate, the price rises to $18, showing a 64% upside.

For those applying a margin of safety, using a 10% growth rate, we suggest a buy price around $14.29. Based on Sofi's current trading price, this represents a 30% margin of safety (MOS). Wall Street’s price target for Sofi is around $14.50, suggesting a 29% upside.

If you believe Sofi can grow at 12% annually, the MOS could be between 30% to 45%. For more conservative investors using an 8% growth rate, there is still a 20% margin of safety, with Wall Street's price target remaining at a 29% upside.

Finally, a comparison to PayPal’s market cap suggests that if Sofi were to reach a similar size in the future, its value could rise to around $63, indicating an upside of 48%—a more than five-fold increase.

Kathy Wood Selling

As for Kathy Wood selling out of her position in Sofi, I couldn’t care less. She might buy back in a couple of weeks or days, but that doesn’t affect me. I believe Sofi is a solid business, and eventually, the stock will reflect that. I don’t know when it will happen, and honestly, I don’t mind. My goal is to accumulate as many shares as I can, because the more shares I own, the greater my upside potential. Even if I can lower my average cost, that's an added bonus. I’m buying shares at a good price, and if I can get more for the same amount of money, I’m happy.

If you had high expectations and are disappointed, I understand. But I don’t see the opportunity cost here. As I’ve said in past videos and streams with Jose, if Sofi underperforms for a couple of years but then outperforms the market in year four, I won’t be complaining.

Currently, the stock is still below $12 ($11.85), just under its 200-day moving average, which is at $11.99—let’s call it $12. This is on the weekly chart. If we get a good inflation report, it could push the stock back above the 200-day moving average, which would be great. But, whether inflation data is positive or negative, or whether there’s a recession or not, I’m not too worried. I’ve seen worse situations before, and I still think we’re in a solid position.

Conclusion

In conclusion, Sofi’s strong growth and profitability improvements make it a compelling investment, especially if you believe in their future growth trajectory. However, considering the premium valuation and potential slowdown in growth, it’s crucial to factor in a margin of safety. The current price offers a 30% margin of safety based on 10% growth, and for those more conservative or bullish, the margin of safety could range from 20% to 45%. Keep in mind, as always, the numbers are subjective, so each investor should adjust their assumptions based on their individual investment thesis.

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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