SoFi Technologies is set to post its Q4 and full-year results on January 29th, with Wall Street expecting the lending and financial services disruptor to end Fiscal 2023 on a high note. Projected revenue growth of 33% for the year underscores SoFi’s robust momentum, fueled by accelerated member and new product additions in recent quarters. Further, the company’s impressive growth has led to improving margins, with Q4 expected to mark its first break-even quarter. Consequently, I hold a bullish stance on the stock.
What’s Driving SoFi’s Ongoing Momentum?
Before we review SoFi’s ongoing momentum and expected Q4 numbers, it’s important to understand what’s driving SoFi’s industry-beating growth in the first place.
The key to SoFi’s success lies in its all-in-one platform, a departure from the isolated solutions most of its competitors offer. Instead of focusing on specific financial needs, SoFi provides a comprehensive range of services, allowing users to “master their finances” regardless of their position on their journey for financial freedom. Whether one aims to manage their debts, start investing, or secure an auto loan, SoFi’s all-in-one platform caters to everyone.
Another factor that allowed SoFi to instantly differentiate itself from its competitors is its commitment to offering its solutions for ultra-low fees. Services like peer-to-peer transfers, overdrafts, point-of-sale transactions, and mobile deposit capture are provided free of charge—a divergence from the industry norm, where such services often come with various fees.
In instances where rivals provide no-fee services, such as Robinhood (NYSE:HOOD) mirroring SoFi Invest’s fee structure, SoFi stands out by delivering a comprehensive, all-in-one financial ecosystem. Thus, SoFi is likely to keep gaining market share in the industry.
SoFi to Sustain Strong Growth in Q4 Following Robust Momentum
SoFi is expected to sustain strong growth in Q4, with analysts projecting revenues for the quarter to land at $571.71 million, up 28.9% compared to last year. Thus, the company is expected to end Fiscal 2023 on a high note, with revenues expected to land at $2.06 billion, up 33.4% versus the previous year.
Analysts remain highly optimistic about SoFi’s upcoming results due to the lack of a slowdown in its ongoing momentum – a trend that has stayed true quarter after quarter. Its most recent Q3 results also point toward sustained momentum in Q4, as growth not only didn’t slow down but, in fact, accelerated.
In particular, SoFi added 717,000 new members in Q3, up 47% year-over-year, bringing its total member count to nearly seven million. This increase implied an acceleration compared to the previous quarter’s member growth rate of 44%.
Unsurprisingly, SoFi has been attracting scores of members as the company continues to enrich its platform with various tools and products. For starters, Q3 was SoFi’s highest quarter ever for new products, with the company introducing one million new products to reach 10.4 million at quarter end. This marked a year-over-year increase of 45% year-over-year, also implying an acceleration with record product additions in both lending and financial services.
One such feature showcasing SoFi’s disruptive approach was its groundbreaking initiative to enable its investment members to actively participate in three notable IPOs within the quarter. These include Oddity Tech (NASDAQ:ODD), Instacart (also known as Maplebear) (NASDAQ:CART), and the Arm (NASDAQ:ARM) IPO.
SoFi offering retail investors access to IPOs at IPO prices is truly unprecedented. Even the most prominent brokers today fall short of extending such access to the majority of their members. This underscores the broad and escalating allure of SoFi as a disruptive force in the space. With such moves, it only makes sense to see the company gaining market share and posting exceptional growth.
Q4 to Mark the First GAAP Breakeven Quarter
Along with notable revenue growth, consensus estimates suggest that SoFi’s Q4 will be the first-ever quarter for the company to break even on a GAAP basis. Essentially, EPS is expected to land at $0.00, ascending from negative territory for the first time.
The reason that SoFi has been posting GAAP losses up until now is that while its aggressive expansion has been powered to a large extent by the superiority of its platform, the company has also been spending a lot toward sales and marketing.
Specifically, during the first nine months of the year, SoFi’s sales and marketing expenses amounted to $544.7 million, up 22.7% year-over-year. However, with SoFi scaling its operations, its margins have simultaneously improved. Despite their notable increase, sales and marketing expenses as a percentage of total revenue declined from 39.8% to 36.1% during this period.
With growing revenues forming a clear margin expansion trend ahead, Fiscal 2024 should be SoFi’s first year of GAAP net income, with Wall Street estimates already forecasting EPS of $0.06 for next year.
Is SOFI Stock a Buy, According to Analysts?
As far as Wall Street’s view on the stock goes, SoFi Technologies has a Hold consensus rating based on four Buys, seven Holds, and three Sells assigned in the past three months. At $8.93, the average SoFi Technologies stock forecast implies 20.9% upside potential.
The Takeaway
SoFi Technologies’ upcoming Q4 results and Fiscal 2023 performance reflect a company on a remarkable growth trajectory. Fueled by an all-comprehensive platform and a commitment to ultra-low fees, SoFi’s Q4 projections signal sustained momentum. Quarterly revenues are poised to hit a new record, while SoFi is set to achieve GAAP net income for the first time, setting a trend of improving profits.
While it’s hard to value the stock today as its future margins are highly speculative, I believe SoFi stock has notable upside potential at its current levels. Since shares trade at 3.5 times Fiscal 2023’s expected net revenues, notable upside could be easily unlocked even if SoFi’s net margins were to stay at rather humble levels in the medium term (10%-15%). Thus, I maintain a bullish stance on the stock.
