After doubling in 2023 and climbing roughly 80% over the past year, SoFi (SOFI) carries positive momentum into 2025. Despite facing a challenging environment in 2024, SoFi has managed to thrive, thanks to the Federal Reserve’s rate cuts and better-than-expected performance in its lending business. Additionally, its expansion into various financial services, including launching private market funds on the SoFi Invest platform, a new SoFi Robo Investing offering, and an expanded selection of alternative funds, indicates a promising future and diversified growth. While the long-term outlook is promising, the stock is relatively richly valued, so price-sensitive investors might want to hold off and look for a more advantageous entry point.
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Adding Attractive Investment Options
SoFi Technologies (SOFI) is a diversified online financial service provider that operates various platforms and offers services, including lending, checking and savings accounts, flexible investment solutions, and insurance products through SoFi Protect.
The company has recently announced the launch of a new robo-advisor platform. This development expands on SoFi’s current automated investment offerings. The new platform, designed in collaboration with BlackRock (BLK), aims to introduce investors with limited financial resources to new strategies and funds that typically require substantial investments. The platform provides a range of portfolios, including traditional stocks and bonds, access to alternative asset classes, and sustainable options.
Further, Sofi announced its collaboration with Templum to offer members access to three new private market funds. This move was driven by a survey revealing that 87% of retail investors expressed interest in investing in privately held companies such as Open AI, SpaceX, and Epic Games.
Recent Top-and-Bottom-line Beats
SoFi announced impressive financial achievements for Q3 2024, including a 30% increase in total GAAP and adjusted net revenue. Specifically, total GAAP net revenue was $697.1 million, up from $537.2 million the previous year. In comparison, the adjusted net revenue hit a record $689.4 million, compared to $530.7 million in the same period last year. The company’s adjusted EBITDA of $186.2 million also showed an increase of 90% from the previous year’s $98.0 million.
This was the fourth consecutive quarter where SoFi reported positive GAAP net income, reaching $60.7 million, with diluted earnings per share of $0.05, beating analysts’ expectations.
Net interest income for the quarter was $431.0 million, showing a 25% increase year-over-year. This was mainly due to a 35% rise in average interest-earning assets despite a slight decrease in average yields year-over-year. Net interest margin of 5.57% decreased from 5.99% in the previous year due to a shift towards secured loans with lower yields. The average rate on interest-earning assets declined by 18 basis points sequentially, while the average rate on interest-bearing liabilities increased by 2 from the previous quarter. The average deposit rate was 220 basis points lower than that of warehouse facilities for Q3 2024.
Management has offered upgraded forward guidance, projecting an adjusted net revenue of $2.535 to $2.550 billion for 2024, an increase of $85 million from the previous guidance. Projected growth is between 22% and 23% compared to 17% to 19%. The revenue from lending is expected to match 2023 levels, while the Financial Services segment and Tech Platform revenue are predicted to increase by more than 80% and in low-to-high teens percentage, respectively. Adjusted EBITDA is anticipated to be between $640 to $645 million, surpassing the earlier prediction of $605 to $615 million.
Full-year GAAP net income expectations have been revised to $204-$206 million, higher than the previous projection of $175 to $185 million with GAAP EPS of $0.11 to $0.12.
A Cautious Approach
The stock has bounced around (beta of 2.72), climbing 14% over the past three years. It trades near the high end of its 52-week price range of $6.01 – $17.19 and shows positive price momentum as it trades above most of the major moving averages. However, with a P/S ratio of 6.18x, the stock appears relatively richly valued compared to the Financials sector average of 3.09x.
Analysts following the company have mainly advocated a cautious approach to SOFI stock. For instance, Deutsche Bank analyst Mark DeVries, a five-star analyst according to Tipranks’ ratings, recently raised the price target on the shares to $14 (from $11) while reiterating a Hold rating. DeVries noted that the anticipation of a more pro-business political environment has raised expectations for the U.S. economy but lowered expectations for further Federal Reserve easing, which could leave potential upside for the stock.
SoFi Technologies is rated a Hold overall, based on the recent recommendations of 15 analysts. Their average price target for SOFI stock over the next 12 months is $12.14, representing a potential downside of -20.60%.
SoFi in Summary
After a remarkable year of growth and expansion, SoFi Technologies is poised to continue this positive trend into 2025. The company continues to innovate and diversify by introducing private market funds and a new robo-investing platform, ensuring various financial services for its users. Although the long-term outlook is encouraging, its current valuation might deter price-sensitive investors. Nevertheless, continual service expansion and consistent financial improvement make SoFi a company to watch in the upcoming year.
