SoFi Technologies’ Strong Q3 Results: A Buying Opportunity or a Cautionary Tale?
Despite posting impressive third-quarter results and issuing upbeat guidance, SoFi Technologies (NASDAQ: SOFI) shares took a hit. The financial-services company has seen its stock rise modestly this year, but can investors capitalize on this dip?
A Record-Breaking Quarter
SoFi’s Q3 performance was nothing short of remarkable. Revenue surged 30% to $697.1 million, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 90% to $186.2 million. Tangible book value rose 16% year over year to $4 per share, with a 2% sequential increase.
Financial Services Segment Leads the Way
The company’s financial services segment was the star of the show, with revenue more than doubling to $238.3 million. Contribution profit skyrocketed from $3.3 million to $99.8 million, driven by its loan platform business, which saw platform-revenue fees surge 5 times to $55.6 million. Interchange revenue also saw a significant jump, rising 211% to $12 million.
Lending and Technology Segments Show Promise
The lending segment saw revenue increase 14% to $396.2 million, with net-interest income (NII) rising 19%. Contribution profit jumped 17% to $238.9 million, with total loan-origination volumes increasing 23%. The technology segment, meanwhile, saw revenue climb 14% to $102.5 million, with contribution profit rising 2% to $33 million.
Growth Across the Board
From a growth perspective, SoFi’s Q3 results were impressive across the board. The company saw a 33% increase in the number of financial products being used, with annualized revenue per product rising 53% to $81. Total clients jumped 17% to 160.2 million.
Credit Metrics Improve
One area of concern for SoFi had been its credit metrics, but the company saw its charge-off rate decline to 3.52% from 3.84% in Q2. SoFi’s personal loan borrowers have an average income of $164,000 and a weighted-average FICO score of 746, while student loan borrowers have an average income of $135,000 with a weighted-average FICO score of 765.
Upbeat Guidance
Looking ahead, SoFi forecast full-year adjusted-net revenue of between $2.535 billion to $2.55 billion, representing growth of 22% to 23%. The company also upped its adjusted EBITDA guidance to a range of $640 million to $645 million.
Valuation Concerns
While SoFi’s growth prospects are enticing, its valuation may give some investors pause. At a forward price-to-earnings (P/E) ratio of 45 times and a price-to-tangible book value (P/TBV) of about 2.6 times, the stock is not cheap based on traditional metrics.
A Hold Rating for Now
Despite SoFi’s strong Q3 results and improved credit metrics, the stock’s valuation concerns make it a hold at current levels. However, with the Federal Reserve embarking on a rate-cutting cycle and the economy holding up well, SoFi may be poised for continued growth in the future.
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