SoFi Technologies (NASDAQ: SOFI) is a fintech company that offers a range of financial products and services to its members, such as loans, banking, investing, and financial planning. The company has grown rapidly and recently reported its first-ever quarterly profit, beating Wall Street’s expectations. But is SoFi a smart stock to buy now, given the uncertain economic outlook and the competitive landscape? Let’s look closer at stock performance, opportunities, and challenges.
SoFi Delivers Strong Q4 Results
SoFi has been profitable on an adjusted EBITDA basis for several years. Still, it achieved a new milestone in the fourth quarter of 2023, when it reported its first GAAP net income of $48 million, or $0.02 per share. This was a significant improvement from a net loss of $66 million, or $0.07 per share, in the same quarter of 2022. Analysts had expected a breakeven result for the quarter.
The company’s revenue also grew 30% yearly to $545 million, driven by solid growth in lending, financial services, and technology platform segments. The company added 1.2 million new members in the quarter, bringing its total membership to 7.5 million, up 44% from a year ago. The company’s stock increasingly uses multiple products and services, which boosts its revenue per member and retention rate.
SoFi Has Multiple Growth Drivers
SoFi expects its revenue to grow 58% in 2024, reaching $2.9 billion. The company also expects to earn between $0.07 and $0.08 per share on a GAAP basis, which implies a slight increase from 2023. However, the company’s earnings growth is expected to accelerate in the long term, as it projects its GAAP EPS to reach between $0.55 and $0.80 in 2026 and grow at a 20% to 25% annual rate after that.
One of the key drivers of growth is its diversified business model, which reduces its reliance on net interest margin, or the difference between the interest it pays to depositors and the interest it earns from borrowers. The financial services segment, which includes checking accounts, credit cards, and investment accounts, generated a profit of $25 million in Q4, up from $4 million in Q3. This segment is expected to grow 75% in 2024 as more members use financial products.
Another growth driver for SoFi is its technology platform segment, which consists of Galileo and Technisys, two companies that SoFi acquired in 2020 and 2022, respectively. Galileo provides payment and account services to fintech and consumer companies, while Technisys offers cloud-based banking solutions to traditional banks. These businesses allow SoFi to leverage its technology and expertise to serve a broader range of clients and generate recurring revenue. The company’s technology platform revenue grew 13% yearly to $97 million in Q4 and is expected to grow 35% in 2024.
SoFi Faces Some Challenges
Despite its impressive growth and profitability, SoFi is not without challenges. The company operates in a highly competitive and regulated industry, facing competition from traditional banks and other fintech players. SoFi also faces macroeconomic headwinds, such as slowing GDP growth, rising unemployment, and lower interest rates, which could affect its lending and investing businesses.
Moreover, the company’s valuation is not cheap, as the stock trades around 221 times its forward earnings and 10 times its forward sales. This implies high expectations from the market, which could make the stock vulnerable to any disappointment or negative news. Company stock has also been volatile, as it is influenced by the sentiment of retail investors and the performance of the broader fintech sector.
Is SoFi a Smart Buy Now?
SoFi Technologies is a fast-growing fintech company with a diversified and scalable business model. The company has a loyal and expanding member base, a solid financial performance, and multiple growth drivers. However, the stock also faces some risks, such as competition, regulation, macroeconomic uncertainty, and valuation. Therefore, investors interested in SoFi should be prepared for some volatility and uncertainty and have a long-term horizon. SoFi is not a stock for the faint-hearted, but it could be a smart buy for those who believe in its vision and potential.
Is SoFi Technologies a good buy now?
SoFi Technologies is a digital finance company offering various products and services, such as loans, investments, banking, and insurance. The company has been growing fast and increasing its value.
Last year, SoFi added $334 million to its tangible book value, which is the value of its assets minus its liabilities. Its tangible book value is now $3.5 billion. SoFi expects to grow its tangible book value by another $300 million to $500 million this year, thanks to its rising revenue from its different business segments.
SoFi’s stock price reflects its high growth potential. Right now, SoFi’s shares are trading at about 2.1 times the estimated tangible book value at the end of 2024. This is similar to the valuation of JPMorgan, the biggest bank in the US by book value. JPMorgan’s shares are trading at 2.15 times its current tangible book value.
But there is a big difference between SoFi and JPMorgan. JPMorgan is a mature and stable bank, but its customer base is not growing very fast. SoFi, on the other hand, is a young and dynamic company, and it is adding new customers at a rapid rate. SoFi aims to become one of the top 10 financial institutions in the country. If it can achieve this goal in the next 10 years, its shareholders will be very happy.
SoFi’s stock is not for everyone, though. It is a risky investment because the company faces much competition and regulation in the financial industry. It also depends on the economic and market conditions, which can change quickly. If you are close to retirement or already retired, you may want to stick with more established and safer banks.
But if you are a young investor who can handle some risk and volatility, SoFi’s stock may be a good option. It is still a bargain compared to its future potential, even after its recent surge.
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