Fintech
This magnificent Fintech stock is down 30% this year, but 1 Wall Street analyst sees it up 72%
SoFi Technologies (SOFI -0.14%) – the online bank going public in 2021 – has outgrown its credit union origins and its status as an advertised bank initial public offering (IPO) shares.. It has demonstrated profitable growth at scale and offers tremendous long-term opportunities. So why are its shares down 30% this year?
Let’s see what’s happening and why one Wall Street analyst still sees upside of more than 70% in the next year or so.
Another great quarter
SoFi reported another stellar quarter with accelerating revenue growth, higher member counts, and net income that beat expectations everywhere.
Revenue increased 37% year over year in the first quarter of 2024 to $645 million, and was adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 91% to $144.4 million. Net income was $88 million, including a one-time benefit.
Both members and products increased 35% year over year, with 622,000 new members for a total of 8.1 million and 989,000 new products for a total of more than 11 million. It has reported member and product increases every quarter since it went public, or for the last 17 consecutive quarters.
Image source: SoFi Technologies.
Loan segment revenue declined slightly year-over-year, but higher balances led to a 33% increase in net interest margin. Disbursements increased across all personal, student and home loan categories, with home loans increasing 274% year over year.
Many other opportunities
Has SoFi reached its maximum limit? It seems the opposite: it has just begun. CEO Anthony Noto said that, as in previous quarters, 90% of deposits come from direct deposit members and these are high-quality professionals with solid credit.
This is increasing debt spending, which has tripled year over year to $1.9 trillion. It is also reducing the cost of financing, leading to an expanded net interest margin of 5.9%. The banking segment reported a net profit of $100 million with a margin of 21%. and an annualized return on tangible equity of 11.7%.
Because it targets students and young professionals, SoFi can develop and maintain relationships over time and benefit from high customer value and years of growth.
SoFi uses what it calls its Financial Services Productivity Cycle strategy to drive greater product adoption among current members, which also leads to higher revenue per user, lower service costs and improved profitability. As these trends continue to play out, the numbers are likely to increase.
Is the increase already a given?
The decline in the stock price seems counterintuitive; As soon as SoFi reported a second consecutive profitable quarter, beating expectations, the stock plummeted and never recovered.
This is likely a short-term reaction and it is important to know the possible market outcomes. The market is not always rational and there is no way to know in advance how it will react to a particular piece of news.
That said, there are typical reactions to certain news. When there is an expectation for a particular milestone, the price of a stock can often rise as it gets closer. SoFi shares gained 115% last year as management repeatedly said they would become profitable in the fourth quarter. If the goal is reached, all pent-up expectations can deflate.
Short-term investors often bet on these types of scenarios and then take out their winnings. This is an example of how investing in the short term can be risky.
Wall Street’s average consensus price target for SoFi shares is a more modest 29%, but Jefferies’ John Hecht has a price target of $12, 72% above today’s price. This was actually a price cut from $15. As SoFi achieves its near-term goals, some analysts see less upside.
However, long-term investors should not feel disappointed or confused by what is happening with SoFi stock. Its consistently positive results simply confirm that it is an excellent company and offers incredible long-term opportunities. Some of that profit expectation may have been factored into the stock’s price as it exits 2023, but it still retained much of its gains and is up 42% over the past year.
It’s important to ignore the noise and focus on the fundamentals. This way you avoid risk and create positions in the best stocks that will reward you in the long run.