SoFi Technologies, the U.S.-based personal finance company, is scheduled to release its latest quarter and full-year results on January 29, generating positive expectations on Wall Street about the financial disruptor’s performance.
Revenue growth of 33% is anticipated for the year, underscoring SoFi’s solid track record, driven by membership growth and new product introductions in recent quarters. Strong growth has led to margin improvements, and the fourth quarter is expected to mark a milestone by reaching breakeven. As a result, specialists maintain an optimistic outlook on the company’s stock.
What are SoFi’s drivers?
Before analyzing current momentum and projections for the fourth quarter, it is crucial to understand what drives SoFi’s growth, standing out compared to the rest of the industry.
The key lies in its all-in-one platform, a clear differentiation from the siloed solutions most of its competitors offer. Rather than focusing on specific financial needs, SoFi provides a wide range of services, allowing users to “master their finances” regardless of their position on the road to financial freedom. Whether managing debt, initiating investments, or acquiring vehicle loans, the company’s comprehensive platform accommodates all needs.
Another distinguishing factor that positions SoFi above its competitors is its commitment to offering ultra-low fee solutions. Services such as peer-to-peer transfers, overdrafts, point-of-sale transactions, and mobile deposit-taking are free of charge, marking a departure from the industry norm, where these services generally carry a variety of fees.
Even in situations where competitors offer commission-free services, as in the case of Robinhood, which follows SoFi Invest’s commission structure, SoFi stands out by providing a complete, all-in-one financial ecosystem. This suggests that the company will likely continue to gain market share in the sector.
SoFi’s growth for the fourth quarter
Revenue for the period is estimated to reach $571.71 million, representing a 28.9% increase year-over-year. This continued momentum suggests that SoFi will close fiscal 2023 with projected revenues of $2.06 billion, marking a 33.4% increase over the prior year.
Analyst confidence in SoFi’s future results persists due to the continued lack of deceleration in its quarterly growth. Third-quarter data indicate sustained momentum that, far from slowing, shows signs of accelerating. During this period, SoFi attracted 717,000 new members, an increase of 47% compared to the same quarter last year, bringing its total membership to nearly seven million, representing a faster increase than in previous quarters.
SoFi’s success lies in its ability to attract new members by constantly improving its platform, with the third quarter setting a record for new product launches, reaching 10.4 million. This 45% year-on-year increase reflects an accelerated pace of product additions in lending and financial services.
Moreover, the innovative initiative of allowing investor members to actively participate in three prominent IPOs during the quarter, including Oddity Tech, Instacart, and the Arm IPO, demonstrates SoFi’s disruptive approach in the financial space, solidifying its position in the market and anticipating exceptional growth.
The breakeven point
SoFi has experienced an outstanding increase in revenue, and according to consensus estimates, the fourth quarter could mark a significant milestone by putting the company at breakeven, with a projected earnings per share (EPS) of $0.00, thus moving out of negative territory.
The company had incurred GAAP losses due to its aggressive expansion, driven by the excellence of its platform, but also by considerable investments in sales and marketing.
For the first nine months of the year, expenses in these areas totaled $544.7 million, reflecting a 22.7% increase over the previous year. Despite the notable increase, the ratio of these expenses to total revenues declined from 39.8% to 36.1%, highlighting the margin improvement as SoFi expanded its operations.
The trend of revenue growth, coupled with margin expansion, points toward a potential GAAP net income year for SoFi in 2024. Wall Street estimates already anticipate EPS of $0.06 for next year, evidencing market confidence in the company’s positive trajectory.
Should you invest in SoFi stock?
As for Wall Street’s assessment of SoFi Technologies stock, the consensus rating is “hold,” with four “buy,” seven “holds” and three “sells” assigned in the past three months. With a current value of $8.93, the average projection for SoFi Technologies stock suggests an upside potential of 20.9%.
In this context, the Zacks Value Style Score indicates that SoFi stock is trading at a premium relative to its peers, highlighting the importance of a thorough evaluation of each stock’s position in the market.
Nevertheless, SoFi Technologies’ fourth quarter and fiscal 2023 earnings projections reveal a company on an outstanding growth path. Driven by a comprehensive platform and its commitment to extremely low fees, expectations for the fourth quarter indicate continued momentum. Quarterly revenue is on the verge of setting a new record, and SoFi is on the verge of achieving GAAP net income for the first time, signaling an upward trend in earnings.
Although evaluating the stock at present is complicated by speculation around its future margins, considerable upside potential looms at current levels. Considering the stock trades at 3.5x projected net income for fiscal 2023, it is possible to unlock notable upside potential even while maintaining moderate net margins over the medium term (10%-15%). With that said, are you attracted to a potential investment in SoFi?
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(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)
