Shares of SoFi Technologies (SOFI) are still up about 80% year-to-date in 2023, even after relinquishing some gains. Currently valued at a market cap of $7.67 billion, shares of the financial services company have easily outperformed the S&P 500 Index ($SPX). Nevertheless, SOFI remains 71% below its three-year high of $28.26.
Given that SoFi stock is currently priced at a steep discount to its three-year high, it is worth taking a look to see whether the fintech stock is a smart buy at the current valuation - or if investors should consider selling to secure profits.
Stellar Growth Continues at SOFI in Q3
While the macro headwinds continued to pose challenges throughout 2023, strong momentum in SoFi’s business has continued. The recently concluded Q3 performance marks a significant achievement, with SoFi achieving record revenues for the 10th consecutive quarter. Concurrently, the company has secured record adjusted EBITDA for the fifth successive quarter, showcasing robust performance across all business segments with enhanced revenue and improved margins.
In Q3, SoFi reported adjusted net revenue of $531 million, reflecting a 27% year-over-year increase. Additionally, the adjusted EBITDA surged by 121%. New members rose 47% during the quarter to 717,000, bringing the total member count close to 7 million. Notably, over 1 million new products were added during the quarter, resulting in a total of 10 million products by the quarter's end.
A notable highlight is the Financial Services segment, which achieved positive contribution profit for the first time. This accomplishment bolstered its overall profitability even as the company invested aggressively in growth initiatives.
SoFi's lending business remains robust, driven by strong net interest income, which was up 90% year-over-year in Q3. Moreover, net interest income now exceeds expenses by almost two-fold. Particularly noteworthy is the increase of high-quality deposits by $2.9 billion quarter-over-quarter, reaching $15.7 billion by the end of the quarter. Impressively, 90% of consumer deposits originate from sticky direct deposit members, and 98% of deposits are insured.
The company’s rapidly expanding high-quality deposit base is integral to its growth strategy. Overall, the resilience and strength of its business continue to drive its success amid challenging market conditions.
Given the strength in its business, the company once again revised its 2023 guidance upward. It increased its 2023 revenue guidance to a range of $2.045 billion to $2.065 billion from $1.974 billion to $2.034 billion. Moreover, it expects 2023 adjusted EBITDA to be between $386 million to $396 million, up from its previous guidance of $333 million to $343 million.
Growth Catalysts for SOFI
SoFi is well-positioned for robust growth in the upcoming quarters, driven by multiple catalysts. The company’s impressive expansion in members and products will likely fuel top-line growth. Moreover, improved operating efficiency, and growing margins suggest that SoFi is poised to deliver sustainable profitability in the coming years.
Notably, SoFi has expanded its personal loan business with stringent credit standards, which is commendable. The company’s commitment to offering high-quality loans has resulted in a robust credit performance, as evidenced by on-balance sheet delinquency rates and charge-off rates that remain below pre-pandemic levels.
SoFi stands to benefit from higher student loan and home loan originations. Beyond increased loan originations, the company is diversifying its funding sources, with a notable boost in loans funded by high-quality deposits, leading to cost savings.
Overall, SoFi’s diversified revenue streams; acceleration in the Technology Platform revenue via higher product adoption; strong balance sheet with access to a lower cost of capital; growing lending capacity (over $27 billion in total capacity to fund loans); and focus on profitability bode well for growth.
Is SoFi Stock a Buy or Sell?
SoFi stock has experienced significant appreciation already, and most Wall Street analysts are not endorsing it. Additionally, concerns exist around macroeconomic uncertainty, which could impact loan originations and pose short-term challenges.
Among the 18 analysts covering SoFi stock, five have a “strong buy” recommendation, 11 analysts recommend a “Hold,” and two maintain a “Strong Sell.” The average price target for SoFi stock is $9.25, which suggests a potential upside of about 15% from current levels.
Nevertheless, SoFi's strong quarterly performance, expanding customer base, robust interest income, high-quality loan originations, and growing lending capacity bode well for long-term growth. Consequently, investors with a long-term perspective may consider accumulating SoFi stock at its current trading price.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
