To The Moon

SoFi Technologies Company Info

SoFi Technologies, Inc. is a financial service platform, which engages in the provision of student loan refinancing options to the private student loan market. It offers home loans, personal loans, and credit cards. It operates through the following segments: Lending, Technology Platform, and Financial Services. The Lending segment includes personal loan, student loan, home loan products, and related servicing activities. The Technology Platform segment focuses on technology products and solutions revenue. The Financial Services segment includes the SoFi Money product, SoFi Invest product, SoFi Credit Card product, SoFi Relay personal finance management product, and other financial services such as lead generation and content for other financial services institutions. The company was founded in 2011 and is headquartered in San Francisco, CA.

Summary

• SoFi Technologies, Inc. delivered strong Q3 results, maintaining double-digit growth across key financial and business metrics, reinforcing its robust business model.

• SOFI's expanding customer base and product offerings drive long-term growth potential, supporting cross-selling and improved profitability through lower acquisition costs.

• All major segments, including Lending, Technology Platform, and Financial Services, posted double-digit revenue growth, highlighting a balanced and resilient business mix.

• Despite a high valuation, SOFI's consistent outperformance and upgraded guidance justify a Strong Buy rating, though volatility and high multiples remain notable risks.

SoFi Technologies, Inc. (NASDAQ:SOFI) $SoFi Technologies Inc.(SOFI)$ has just released its Q3 earnings, a big event for any public company. The company's performance in Q3 was really strong as the company continued demonstrating double-digit growth across all the most vital financial and business metrics. The management is highly likely to be confident in the durability of this growth momentum, which I see from their aggressive guidance upgrade.

Valuation is not as attractive as it was a year ago, as multiples are currently heavily growth-oriented. However, I think that due to SOFI's consistent history of earnings outperformance, together with guidance upgrades will ultimately lead to more aggressive forward P/E ratio contraction than currently expected by Wall Street. And the stock has done really well since my previous bullish write-up when its price was around $20. Thus, my take is that SOFI remains a Strong Buy.

SOFI Q3 earnings review

Today's earnings of SOFI look really impressive, as the company continues delivering robust growth both in financial and operating metrics. Let's start by looking at the company's headline numbers first. SOFI's revenue grew by 36.3% year-over-year, while the non-GAAP EPS expanded from $0.05 to $0.11. We see that profitability growth continues its acceleration, which underscores the strength of the company's business model. By the way, both revenue and EPS were higher than consensus forecasts, which is the eighth consecutive double-beat quarter.

Strong earnings momentum is highly likely to be sustainable because this financial success is based on a solid foundation, which is SOFI's rapidly expanding customer base. The number of members grew by 35% on a year-over-year basis, to a record 12.6 million members. I consider it to be a vital foundation for long-term growth because expanding the customer base creates a snowball effect as the larger SOFI's scale is, the easier it is to attract new partners and expand the company's fintech ecosystem. And vice versa, the more products SOFI's 'one-stop-shop' offers to potential clients, the easier it is to attract them. And this can potentially unlock new growth drivers via cross-selling opportunities. With all that being said, the more the company's cross-selling capacity is, the easier it is to drive long-term profitability improvements by significantly decreasing customer acquisition costs.

Therefore, the fact that SOFI's number of total products maintained 30%+ year-over-year growth in Q3 is another bullish indication that underscores the management's efforts to expand cross-selling potential.

If we dig deeper and go to the level of separate segments, everything looks great as well. Both the Lending and Technology Platform segments demonstrated double-digit YOY revenue growth. The Financial Services segment continues demonstrating robust momentum with its staggering 76% year-over-year net revenue growth. The important fact is that the segment also demonstrates aggressive profitability expansion with its contribution margin demonstrating a leap from 42% to 54% on a year-over-year basis. Rapidly expanding profitability indicates that the segment's business model is extremely efficient and has the potential to create more value for shareholders with further revenue growth. The fact that all segments demonstrated robust growth means that SOFI's business mix is strong and there are no laggards dragging down consolidated financial performance.

Last but not least is the management's upbeat guidance. As we can see, there was a massive full-year revenue growth forecast upgrade, from 30% to 36%. As a result, profitability metrics are now also expected to be higher by a few percentage points each. This will end up by creating significantly more value for shareholders as the updated guidance forecasts a $2.5 billion increase in tangible book value, up from $0.6 billion in the previous guidance.

With a maintained aggressive growth momentum across all vital financial and business metrics together with a notable guidance upgrade from the management, I expect several prominent Wall Street analysts to start upgrading their target prices for SOFI very soon. Highly likely increased optimism from Wall Street analysts will inevitably attract more new investors, and increased demand for the stock will push the share price higher. Therefore, I believe that the modest market reaction during pre-market hours (+3% to the share price while I am writing this analysis) should not mislead investors.

Mitigating factors

I think that one of the biggest risks for investors at the moment is SOFI's current valuation. A $30+ billion market cap for a company with around $3 billion in TTM total revenue does not look quite cheap. The P/E ratio is also quite high at the moment, and SOFI will need to maintain aggressive EPS growth over several years to justify its current market cap. I am still bullish because SOFI has a robust record of outperformance against all bullish forecasts, and we see guidance upgrades from the management almost every quarter.

But high multiples are always a risk because past performance does not guarantee future results. There are many things that can go south and undermine SOFI's EPS growth potential. It can be due to internal factors like failing to manage costs during the aggressive growth phase or overestimating the synergetic potential of a prospective M&A deal. Or, it can be external developments, like the unexpected downturn in the macroeconomy.

Let's keep in mind that SOFI is a highly volatile stock with its 52-week range being quite wide from $8.6 to $30. We all enjoyed the last few months as we were getting advantages from this high volatility as the stock price demonstrated sharp upward movements due to several positive developments, including Q1 and Q2 earnings. However, we should not forget that it might work in the opposite direction as well. Even a lonely hiccup in quarterly earnings due to some one-off event might cause big panic among investors, which will highly likely lead to a double-digit share price decline in just one day.

Conclusion

As one of the greatest investors of all time said, it is far better to buy a wonderful company at a fair price than vice versa. SOFI's current multiples indicate that the stock isn't cheap. However, I do not consider it overvalued either, because of SOFI's strong record of outperforming against all forecasts and outlooks. The fresh Q3 earnings release reinforces my bullish opinion because there are no signs of SOFI's business expansion slowing down.

You can’t control the market. But you can control how you invest.

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