Staggering Development for SoFi Investment Holders
Staggering Development for SoFi Investment Holders
SoFi Tech (SOFI 3.88%) is experiencing a prosperous few months. Over the last couple of weeks, the digital bank and lending platform has added a new loan partnership, reported robust third-quarter earnings, and launched robo-investing services for customers.
The company is consistently performing at its peak, expanding its product lineup to enhance its worth. This growth, in turn, is driving a surge in customer base.
The stock has skyrocketed by 35% over the past month and is nearing the record highs it hit following its merger with a SPAC in 2020. With this recent spike, one might wonder if it's a wise time to invest. Let's explore SoFi's stock performance and make an informed decision.
Rapid growth and improving profitability
The financial report for the third quarter showed more of the same. SoFi Tech's customer base expanded by 35% year-on-year to reach 9.4 million, a new record. Strong customer growth translated into a 30% increase in adjusted net revenue in the quarter.
Despite the impressive growth, SoFi Tech's profitability has been a limiting factor, keeping the stock prices low. Management has managed to cut costs and improve its lending operations in recent quarters, resulting in better financial reports. Net income stood at $61 million last quarter and $214 million over the past 12 months. It anticipates net income of over $200 million in the fiscal year 2024.
It is noteworthy that SoFi Tech is still investing heavily in growth-related expenses, such as marketing and product development. The company is spending over $200 million a month on marketing and $139 million on product development. However, these figures should decrease as a proportion of revenue as the company expands further, leading to even more profitability.
Expanding its product offerings
SoFi Tech's value proposition to consumers is to serve as a one-stop-shop for all their financial needs. It provides consumer banking, savings, credit cards, investing, and even cryptocurrency trading. Aggregating these services helps distinguish itself from other consumer banks. Last quarter, the number of total products in use reached 13.65 million, an important metric for investors to monitor.
Furthermore, this month, SoFi Tech announced the launch of a robo-advisory platform for customers. This automated financial advisory service charges a small fee for quantitative portfolio allocations, a popular product in the investment world. This should help grow the SoFi platform by attracting more assets.
On the lending side, SoFi Tech recently made a promising deal with Fortress Investment Group, taking on $2 billion worth of loans. SoFi does student, home, and personal loans but aims to become more capital-light by selling these loans to third parties. The $2 billion deal with an investment group significantly advances this goal.
Is the stock a buy at this moment?
SoFi Tech has a market cap of $14.6 billion. At first glance, its trailing P/E ratio (135) might suggest the stock is overvalued. However, it's essential to bet on what's to come, not what's passed.
Revenue has grown by 262% since 2021's beginning, and customer growth doesn't show any signs of slowing down. Given this trend, I believe the revenue growth will continue at a substantial pace for the next few years. Net income is also still low due to the heavy investment in marketing and product development.
Net income only recently turned positive for SoFi Tech after years of losses. Do not underestimate its ability to increase its earnings in the coming years as it continues to grow. If SoFi Tech can reach $1 billion in net income, its P/E ratio will drop to around 14.6, well below the market average. Consequently, the stock should do well for shareholders under this scenario.
SoFi Tech is not a risk-free investment; no stock is. However, unlike other growth stocks currently trading at high prices, there may still be substantial value for investors who bought after last month's price increase.
Based on its recent financial performance, SoFi Tech is actively reinvesting funds into marketing and product development to expand its product offerings and customer base. With the launch of its robo-investing services and strategic loan partnerships, the company is positioning itself as a comprehensive financial services provider.
Given the company's strong revenue growth and promising profitability projections, some investors might view this as an opportune moment to consider investing in SoFi Tech's stock, with the potential for substantial returns in the future if it achieves its net income goals.