The fintech sector is abuzz with excitement as the S&P 500 index reaches new heights, fueled by the Federal Reserve’s recent decision to cut interest rates. While many stocks are basking in the glory of this news, SoFi Technologies (NASDAQ: SOFI) remains a notable exception. Despite its impressive diversification efforts, the company’s stock price has plummeted 51% since the start of 2022, when the Federal Reserve began its aggressive rate-hiking cycle.
However, beneath the surface, SoFi has made significant strides in transforming its business. From its humble beginnings as a student loan specialist, the company has expanded its offerings through the acquisition of Golden Pacific Bancorp, granting it a banking charter. This strategic move allowed SoFi to capitalize on the higher interest rate environment, resulting in a staggering 400% increase in net interest income to $1.3 billion last year.
SoFi’s deposit base has also experienced remarkable growth, swelling to nearly $23 billion, thanks to its high-yield savings accounts boasting an annual percentage yield (APY) of up to 4.5%. The company’s technology platform, built through investments in Galileo and Technisys, has enabled it to provide banking products to non-bank companies, positioning itself as a potential Amazon Web Services (AWS) of fintech.
While concerns surrounding SoFi’s lending business persist, including a rise in net charge-offs and declining lending activity, the company’s prospects appear promising. With interest rates on the decline, SoFi is well-positioned to benefit from increased deposit growth and a more attractive refinancing environment for consumers.
Analysts expect SoFi’s net income to continue growing, projecting $173 million this year, followed by $320 million in 2025 and $577 million the year after. As the company’s earnings improve and interest rates fall, now may be an opportune time to invest in this fintech giant.
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