SoFi Technologies: A Fintech Powerhouse on the Rise
The S&P 500 has been on a tear, consistently reaching new heights and showcasing impressive performance over the past two years. However, one stock that has truly stood out from the crowd is SoFi Technologies (NASDAQ: SOFI), which has skyrocketed by 261% since the beginning of 2023.
A Streak of Profitability
SoFi’s ability to expand its customer base and grow revenue has set it apart from its peers. After achieving its first quarterly net income a year ago, the fintech has maintained a streak of profitability, delivering several consecutive quarters of solid earnings. The company is reaping the rewards of higher interest rates, which have played a pivotal role in accelerating its customer growth.
Transforming into a Financial Services Powerhouse
In recent years, SoFi has undergone a significant transformation from a student loan refinancing company into a financial services powerhouse. This shift began during the pandemic when student loan forbearance made its original business significantly less appealing. SoFi expanded into personal loans, catering to the growing demand, and then acquired Golden Pacific Bancorp in 2022. This acquisition provided SoFi with a foundation for deposits and loans, giving it the advantages of a traditional bank.
A Banking Charter and Explosive Growth
With a banking charter, SoFi has attracted countless customers by offering annual yields of up to 4.5% on their deposits. As a result, SoFi customer growth has exploded, and deposits now stand at $24.4 billion. The acquisition also means SoFi can retain more of its loans, a considerable advantage in the recent high-interest-rate environment. This move has allowed the company’s net interest income to skyrocket to $431 million in its most recent quarterly results.
Building a Technology Infrastructure
SoFi has made substantial investments in platforms like Galileo and Technisys, transforming the fintech landscape. Through Galileo, SoFi provides the essential back-end services that other fintech companies rely on. At the same time, Technisys helps support multiple products simultaneously, runs on the cloud, and allows banks to process and analyze data in real-time. With this technology stack, SoFi aims to be the go-to provider of financial infrastructure.
A Buy, Hold, or Sell?
SoFi has expanded rapidly and is executing extremely well, which is why the stock has run up so much. However, investors’ concerns coming into this year primarily focused on SoFi’s lending business. The fintech has dramatically expanded its personal lending operations, and credit quality remains an important aspect of its business. While SoFi’s loan portfolio continues to show resilience, the swift rise of its stock price could signal that it’s time to take some chips off the table.
A Hold Rating for Now
SoFi has posted several profitable quarters and continues to grow its customer base and earnings. Its execution has yielded impressive results for investors. However, the stock has experienced a significant surge and trades at a premium valuation. While I’m optimistic about SoFi’s long-term growth potential, this elevated valuation brings with it increased volatility — both upward and downward. Following the recent run-up, investors may consider this a good time to trim their position and take some profit off the table. That said, I still like the long-term outlook for SoFi over the next decade, so I give it a hold rating today.
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