SOFI - SoFi: Nothing Is Over

2023-07-31 12:35:43 ET

Summary

• We had our members buying SoFi Technologies, Inc. under $5 a share as it was beaten down badly for little fault of its own.
• Loan growth remains robust.
• The company is controlling expenses and seeing strong results from its diversified offerings.
• The growth is impressive whilst the forward look is strong.
• Hold onto your shares and let your house position run if you followed our trading guidance.

Do you know what we love? Winning. We love winning. And one of those winners that we secured was SoFi Technologies, Inc. ( SOFI ) stock. As we were adamant to be buying this stock earlier this year under $5.00, many questioned the trade we had laid out, but we suggested selling the initial investment after it doubled. Now, we are running a house position forever and ever with the gains from that trade.

Following the playbook like this can build generational wealth, so hang on to those SOFI shares. In fact, some of you said that this company and stock " has to do better ." Now look, we have had mixed ratings on SOFI stock as traders, going both long and short and profiting on both sides, but have had a long bias since we told you to get in under $5 . We have been plainly asked if this rally will fizzle. Very near term, perhaps, but nothing is over in the long term. Nothing.

Make no mistake, this market has been strong the last few months, while SoFi and other similar stocks have had some good runs. There is still some concern in banks, and we have covered this in depth elsewhere in banking columns, but SOFI is delivering and it is just getting started on its long-term journey as it did in its just-reported Q2 quarter this morning. The stock is flying, and it is a winner. You are a winner, too, if you have been trading alongside us. We think you hold on to shares here. Let's discuss the key metrics you should be aware of.

SoFi's Q2 headline results

In the just-reported quarter, SoFi's top line growth accelerated once again, and the company posted record Q2 adjusted net revenue of $489 million, up 37.3% year-over-year. This was once again well above the high end of management's guidance, and it beat consensus estimates by $15 million.

The strength in the top line was maintained through the report despite operational expenses rising, and the adjusted EBITDA line grew, hitting a record $77 million, which once again blew out expectations, and this was the 12th consecutive quarter of SoFi EBITDA growth. To be clear, this even blew away our bullish expectations for the stock.

SoFi's Q2 surpasses our expectations

We have extensive banking coverage, and for the most part we have seen continued loan growth demand, despite higher rates, as well as higher costs of deposits. We suspected strong growth overall, but SoFi was really impressive. The diversification is also leading to more gains. And now, they can target 39 million or so more students who want to refinance loans to save money. This is a big opportunity.

We were looking for a top line of $470 million, which we arrived at assuming new member adds of 500,000-550,000, and new products of 750,000-800,000, along with a slight reduction in the pace of loan growth. Well, SOFI came in well above our expectations. Far above it. The company saw new member adds of 584,000 along with new product adds of 847,000. Simply impressive.

We did think margins would be pressured due to a higher cost of funds, and we did expect SoFi to lose money on a per-share basis, but continue to work toward approaching breakeven, which the company had previously forecasted the possibility of Q4 2023 GAAP profitability. We targeted a loss of $0.06-$0.09. SoFi reported a loss of $0.06, and this beat our expectation at the midpoint and was around the consensus, which expected losses of $0.06.

The company still continues to take market share and disrupt the banking space. They are moving more into credit cards and other innovative products and are masters of cross-selling, something that it will continue to do.

SoFi sees Q2 loan growth

Ongoing strong personal loan originations continued in Q2. Personal loan originations were $3.7 billion in Q2, which was up nearly $1.3 billion, or 51%, year-over-year. This also was a 27% increase sequentially. That is simply outstanding.

However, student loan and home loan originations were down. The student loan moratorium, however, will be ending in August, barring more action, and that bodes very well for SoFi as almost a bonus at this point, whilst the housing loans mimic the overall sector. One could argue SoFi needs to do better on home loans, as the housing sector is not nearly as weak as expected, but originations here were down 27%. Overall, second quarter lending segment total origination volume increased 37% year-over-year and that shows growth continues to be very impressive. The stock is finally reflecting opportunity here.

SoFi's tech platform

SoFi Technologies, Inc. has employed technological capabilities that it employs to attract customers. You can be sure they will incorporate AI as well. Folks, SOFI is among the best in the business, and really across other businesses, at cross-selling products.

We want to remind you that the synergy of Technisys and Galileo has led to tremendous growth, but that growth is moderating.

The technology platform-enabled accounts were up by 11% year-over-year to 129.4 million, though that appears to have declined from a peak of 130.7 million last year. However, it was up from 126 million in Q1. In this segment, Q2 revenue was a record $87.6 million in the quarter, which was up 4% from last year, and up 13% sequentially.

SoFi financial services

The financial services segment in Q2 saw $98.1 million of revenue. The revenues are still growing for the financial services, with 223% growth from last year. We had expected this growth to continue given the new product and new member growth.

SoFi Invest and SoFi Money products have driven growth. Total financial services products grew by approximately 2.5 million, or 47%, year-over-year, up to 7.9 million. This was also a 0.8 million increase from the sequential Q1.

Further, SoFi Money saw another 280,000 products added, and SoFi Invest products increased by 105,000.

While the member growth is strong, the company is paying up to attract members, offering up to an incredible 4.4% APY on deposits, as well as a rewards program. This rate is for direct deposit only, allowing money to flow in. However, margins have peaked for now with these high savings rates being paid. To move to EPS positive, expenses will need to be cut more. But, EBITDA growth is strong and the forward view looks good.

Forward view

SOFI offered strong guidance. In H2, SoFi Technologies, Inc. management expects to generate $1.03 billion to $1.09 billion of revenue up 19% to 26% year-over-year, and $180 to $190 million of adjusted EBITDA. For the year, the company issued strong guidance:

For the full year 2023, management expects adjusted net revenue of $1.974 to $2.034 billion, up from its prior guidance of $1.955 to $2.02 billion, and full-year adjusted EBITDA of $333 to $343 million, up from its prior guidance of $268 to $288 million, representing a 40-44% incremental adjusted EBITDA margin. Management projects that a more significant portion of the second half adjusted net revenue and adjusted EBITDA results will be generated during the fourth quarter. As the company moves toward expected GAAP net income profitability in the fourth quarter, management expects share-based compensation and depreciation and amortization expenses to be slightly higher than reported second quarter 2023 levels in both the third and fourth quarters of the year.

You are also looking at EBITDA almost doubling from 2022. Being profitable on a GAAP basis is huge as well. We do not love the share based compensation, but the outlook is strong.

Our take

So the next trade? Our next SoFi Technologies, Inc. entry levels and our exit plans are reserved for members of our service, and we profit on the long and short end. But, generally speaking, a wise trader will now have a house position to play with. We do see levels where we would turn short-term bearish, or tactically overweight long. As of right now, shares have performed as we have guided.

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