SoFi Technologies (NASDAQ:SOFI) has been successfully navigating through the turmoil in the fintech industry. Shares of the all-in-one money management fintech company have gained 76.7% year-to-date. Meanwhile, major fintech companies like Block (NYSE:SQ), Paypal (NASDAQ:PYPL), and Adyen (OTC:ADYEY) have seen their stocks plummet by 21%, 13%, and 50%, respectively. With strong operating momentum remaining and profitability appearing closer by the quarter, SOFI’s outperformance is likely to continue. Thus, I am bullish on the stock.
Why is SOFI Stock Outperforming Its Industry Peers?
SOFI’s success and differentiation from its industry peers can be traced back to a few factors. While the fintech industry has seen an influx of competitors in recent years, SOFI has managed to carve out a significant market for itself. Its innovative approach has not only set it apart but also disrupted traditional players, such as PayPal.
Let’s take a closer look at the specific reasons behind SOFI’s dominance in this rapidly changing industry.
An All-In-One Platform
What sets SOFI apart in the competitive fintech landscape is its innovative, all-in-one platform. Rather than offering isolated solutions, SOFI offers a wide range of services that collectively empower its users to “master their finances” regardless of their position on the financial journey. Some seek to reduce their debt, and others aspire to start investing, while some are in need of an auto loan. SOFI’s all-inclusive product caters to a much broader audience compared to its competitors.
Ultra-Low Fees Anhilate Competition
In addition to its comprehensive financial platform, SOFI has revolutionized the industry by adopting an ultra-low fee business model. Services such as P2P transfers, item returns, overdrafts, point-of-sale (POS) transactions (both domestic and international), and mobile deposit capture, among others, are provided completely free of charge. Clearly, this has been a shock to the fintech industry, as such services usually come with different fees.
How Does SOFI’s Disruption Translate in Numbers?
SOFI’s all-encompassing, cost-effective platform has been a game-changer in the fintech industry for some time now. The company’s most recent second-quarter results reinforce this trend, marking its ninth consecutive quarter of record revenue and fourth consecutive quarter of record adjusted EBITDA. Specifically, adjusted net revenue reached $489 million, a 37% year-over-year increase, while adjusted EBITDA surged by an extraordinary 285% to $77 million, driven by economies of scale.
These results showcased record-breaking revenue in both SOFI’s Technology Platform and Financial Services segments, fueled by a surge in member additions and robust monetization trends. In terms of user growth, SOFI added a record 584,000 new members in Q2, bringing its total membership to 6.24 million, an impressive 44% year-over-year increase. In the current economic climate, SOFI’s rapid expansion stands as a testament to the resonance of its platform with consumers.
For a clearer picture of SOFI’s unique success in today’s landscape, consider its Lending adjusted net revenue of $322 million in Q2, which grew by 29% year-over-year. The Personal Loans segment also demonstrated its strength, originating a record $3.7 billion, marking a 51% increase from Q2 2022. These figures sharply contrast the prevailing credit environment, where rising rates have dampened loan originations, particularly on the individual consumer level.
SOFI’s Home Loans service is also amazing, given that mortgages have become increasingly more expensive over the past year. The company nearly tripled its originations quarter-over-quarter. This was powered by SOFI’s acquisition of Wyndham Capital Mortgage. WCM has essentially enhanced SOFI’s customers’ digital mortgage experience while lowering the use of third-party partners and processes.
Overall, SOFI appears to be executing a winning strategy across the board, even amid the most challenging macroeconomic environment of the past decade. The company’s achievements are all the more impressive in this context.
Road to Profitability to Bolster Investor Confidence
SOFI’s disruptive business model has undeniably yielded remarkable growth metrics. This progress is a significant step toward achieving profitability, an achievement that should further bolster investor confidence in the company’s stock, in my opinion.
Admittedly, building such a comprehensive platform has come at a cost. SOFI’s substantial R&D expenses (referred to as Technology and Product Development expenses in its income statement) have historically been elevated. However, with growth comes scale, and with scale comes improved margins. As noted earlier, the $77 million in adjusted EBITDA represents a margin of 16%, a considerable improvement from the roughly 5.6% margin seen in the previous year.
Therefore, while SOFI reported GAAP net losses of about $48 million in the second quarter, this marks a significant improvement from the roughly $96 million loss in the same period last year. Importantly, stock-based compensation fell to 15.5% of adjusted net revenue compared to 23% in the previous year. Based on its current growth momentum and margin expansion trend, management anticipates GAAP profitability by the fourth quarter of this year, providing solid reassurance to investors.
Is SOFI Stock a Buy, According to Analysts?
Regarding Wall Street’s view on the stock, SoFi Technologies has a Hold consensus rating based on six Buys, seven Holds, and four Sells assigned in the past three months. At $9.84, the average SoFi Technologies stock price target implies 23.8% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell SOFI stock, the most profitable analyst covering the stock (on a one-year timeframe) is Dan Dolev from Mizuho Securities, with an average return of 13.81% per rating and a 59% success rate.
The Takeaway
Overall, SOFI Technologies has set itself apart from its fintech peers with its innovative, all-in-one platform and ultra-low fees. Its recent financial performance, characterized by record revenues and strong user expansion, firmly underscores SOFI’s ability to thrive in a tumultuous fintech landscape. Further, as SOFI edges closer to profitability, investor confidence is likely to strengthen.
Given this setup, although the robust year-to-date surge in SOFI stock may suggest that current investors have missed out, the prospect of further gains remains highly plausible.
