SoFi Keeps Growing, But A Big Question Mark Remains (NASDAQ:SOFI)

We have been holding a house position in SoFi Technologies, Inc. (NASDAQ:SOFI) stock after having a high conviction call to buy when shares fell under $5.00, and backing out the initial investment after a near double. We have traded the name several other times at our investing group as well. We believe the company is still early on its long-term public journey, and yet the growth continues, and market share gains are strong.

However, there remains one big question mark here. The big question mark is whether all of the growth can turn into the company ever making sustained positive net income. However, they are on that path. This was evidenced in the just-reported Q4 quarter. Let’s discuss the key metrics you should be aware, and whether ongoing profit is in the cards.

SoFi’s Q4 headline results

In the just-reported fourth quarter earnings this morning, we saw SoFi report top-line growth. The company posted a record Q4 adjusted net revenue of $594.3 million, up 34.0% year-over-year. These results beat consensus estimates, surpassing on the top line by $22.8 million. This revenue growth comes as student loan repayment has resumed, while the general macro lending environment has certainly been shaky. We saw strength down the report despite operational expenses rising, and the adjusted EBITDA line grew, hitting $181 million, which crushed expectations. This was the 14th consecutive quarter of EBITDA growth, and was a new record. It was even up $83 million from the sequential Q3’s $98 million. We like holding the stock, despite the recent selloff into these earnings.

SoFi’s Q4 member adds and earnings

We cover a lot of banks. Frankly, the performance of banks in Q4 releases so far has been mixed. Some are growing loans and deposits, many are still seeing pressure on net interest margin, and few are seeing earnings expansion. What we love about SoFi is its ability to continue to attract new members to its platforms and products. Once consumers are in the SoFi universe, the company does a great job at cross-selling products.

That said, SoFi saw Q4 member adds of 585,000 along with new product adds of 0.695 million. With this growth, coupled with the growth all year in 2023, quarter-end members are up 44% from a year ago. On top of that, quarter-end products are up 41% from a year ago.

However, positive earnings have continued to truly elude the company, though it is now breakeven operationally. Management had forecast getting to breakeven this quarter and delivered positive adjusted EPS. However, just breakeven, or making a few cents adjusted even, won’t keep the Street happy if there is not real and ongoing progress toward profits on a GAAP basis.

On the bright side, there was $48 million in GAAP net income. This is a huge milestone. The question is whether it can keep going. That said, each year there has been improvement.

SoFi reported EPS of $0.02, though this missed consensus by $0.02. But the good news is that SoFi hit their projection of getting to breakeven on the adjusted line. From here, we would like to see sustained profits. Now, in our coverage we have seen very few banks expanding margins, but SoFi saw net interest margin at 6.02%, up from 5.94% last year, and 5.99% in the sequential quarter.

SoFi Q4 loan and deposit growth

SoFi also is continuing to grow loans and deposits, too. Total deposits grew by $3.1 billion, up 18% in Q4 to $18.6 billion at quarter-end. Personal loan originations were $3.2 billion in Q4, which was up 31% year-over-year, though this dipped 17% from Q3. And student loan volume grew. SoFi is benefitting from the fact that the moratorium on repayment is over, providing ongoing revenue into the future.

Student loan volume was $790 million in Q4. This was up 95%, year-over-year. This volume dipped 17% sequentially, due to seasonal timing. It is not all growth. The bank is not immune from all of the macro pressure. This is evidenced by what we are seeing in housing. However, in 2023 the company bought Wyndham Capital Mortgage, which drove a 193% increase in home loan volume. But without it, there would have been organic pressure. For the entire year, home loans were up just 3%. Overall, in Q4, the lending segment total origination volume increased 45% year-over-year.

SoFi’s Q4 performance in tech and financial services platforms

We also closely like to watch movement in SoFi’s technology platform-enabled accounts. These accounts were up 11% from last year and the segment saw revenue hit a record of $96.9 million. Revenue was up 13% from a year ago. While having AI will continue to be a benefit their current product Konecta, an AI digital assistant for consumers, has been well-received. That said, contribution profit here was up 81% from last year.

Turning to the financial services segment in Q4, SoFi saw $139.1 million of revenue. This was 115% growth from last year. We do expect this growth to continue given the new product and new member growth, though the pace of growth is unsustainable, so expect it to normalize. This has been a money-losing segment, but back in Q3 we saw the first quarter ever with a positive contribution to profit. Here in Q4, we saw the second quarter in a row of positive contributions to profit, with $25.1 million of profit. This was driven by SoFi Money products jumping 311,000 while Relay products increased by over 378,000. Finally, SoFi Invest products fell by 84,000, but adjusted to exclude the digital assets business which is close, those products were up 113,000.

All things considered, these results have us long-term bullish. Now we look for 2024 to see if real profit can be sustained. The market now wants to see sustained growth in profits, not just EBITDA growth. But we are close.

Looking ahead

Guidance is even more important than the print. For Q1, management expects to generate $550 to $560 million of adjusted net revenue, $110 to $120 million of adjusted EBITDA and GAAP net income of $10 to $20 million. This would be another quarter of GAAP profits. This is what the Street wants and is why shares are up on the news. For the full year 2024, management expects some growth once again. It sees the Tech Platform and Financial Services segments combined to grow at least 50%. However it sees lending revenue to be down from 2023 at “92% to 95% of 2023 levels,” and expenses under the EBITDA line to be flat when compared to 2023 results.

We think SoFi pushes to add nearly 2.5 million new members. Management is also looking for adjusted EBITDA margin of approximately 30% by year-end, or $580 to $590 million for the year. Can sustained profits be had? Well, SoFi is projecting full-year GAAP net income of $95 to $105 million, or GAAP EPS of $0.07 to $0.08. So while the valuation will still be stretched on this, the path is clear.

An early look at past 2024, management expects 20% to 25% compound revenue growth through 2026, assuming no meaningful negative changes in the overall operating environment. So, we wanted to see profits right? Well, the growth the next few years is projected to bring in between $0.55 and $0.80 in GAAP earnings per share in 2026. This is substantial growth. Perhaps the stock will finally start to be bid up from here.

Moreover, we see 20% to 25% EPS growth beyond 2026 reflecting both the continued growth of the core business growth plus the added benefit from new business lines launched in the 2024 to 2026 time period.

Our take

If you follow the trades at our investing group, or are even casually following our public coverage, you likely have a house position in SoFi Technologies, Inc. shares, or may have been tempted to add on the recent weakness. We think the stock is again a buy on this news. The market wanted to see ongoing progress toward real profitability, and it has projected just that.