Why I'm Adding to My SoFi Position After Record Quarter

On Tuesday morning, emerging financial services company Sofi Technologies SOFI, reported the firm's third quarter financial results. In CEO Anthony Noto's tweeted words: "The results clearly demonstrate that SoFi is no longer just a lender but a diversified and durable financial services company well on its way to becoming a top 10 financial institution."

For the three-month period ended September 30, SoFi Technologies posted a GAAP EPS of $0.05 on revenue of $697.121 million. The earnings print beat Wall Street by a penny per share and was good for a fourth-consecutive quarter of profitability. The revenue number beat consensus handily, beat the firm's own guidance and was good enough for year-over-year growth of 29.8%.

The firm drove record adjusted net revenue growth of nearly 30%, which was generated by a combined 64% rate of growth across the firm's financial services and tech platform segments. SoFi Money reached record highs for accounts, total deposits and direct deposit members. Home loans experienced their best quarter since Q2 2022, as home equity loan volume grew 44% and home purchases and refinancing grew 23%. Perhaps most importantly, the firm's on-balance sheet 90-day personal loan delinquency rates decreased to 57 basis points from 64 basis points sequentially.

The CEO

In the press release, Noto — whose Army Black Knights are 7-0 in football so far this year, ranked 21st in both polls and will take on Air Force in a CiC game this Saturday — added: "This quarter was the strongest quarter in our history. Our results reflect how SoFi is consistently achieving durable growth, how our innovation and brand building are attracting more members and clients to our platform than ever before, and how we are delivering strong and improving returns."

Member and Product Growth

New member additions were over 756,000 for the quarter reported, taking total membership up 35% to nearly 9.4 million. Product additions for the period came to nearly 1.1 million, taking total products up 31% to 13.7 million, excluding digital asset accounts, which is something the firm no longer does.

Segment Performance

• Financial Services generated total revenue of $84.165 million (+102%) as net interest income grew 66% and non-interest income grew 235%. This produced a segment profit contribution of $99.758 million (up from $3.26 million), as segment contribution margin improved from 3% to 42%.
• Lending generated total revenue of $396.245 million (+14%) as net interest income grew 19% and non-interest income contracted 5%. This produced a segment profit contribution of $238.928 million (up 17%), as segment contribution margin improved from 58% to 60%.
• Technology Platform generated total revenue of $102.91 million (+14%) as net interest income grew 10% and non-interest income grew 14%. This produced a segment profit contribution of $32.955 million (up 2%), as segment contribution margin improved from 32% to 36%.

Beefy Guidance Raise

For the full fiscal year, SOFI expects to deliver adjusted net revenue of $2.535 billion to $2.55 billion, which is up $85 million from the previously issued guidance range of $2.43 billion to $2.47 billion. 

That would imply annual revenue growth of 22% to 23%, up from previously-issued guidance for growth of 17% to 19%. The firm now assumes that lending adjusted net revenue will reach at least the levels seen for the full year of 2023. The financial services segment is expected to grow revenue more than 80% year over year, as the tech platform is seen growing revenue in the low-to-high teens percentage wise.

Full-year adjusted EBITDA is now seen at $640 million to $645 million, up from prior guidance of $605 million to $615 million. That would come to roughly 25% adjusted EBITDA margin. Full-year GAAP net income is now projected to land at $204 million to $206 million, up from $175 million to $185 million as full-year GAAP EPS is now seen at $0.11 to $0.12, up from $0.09 to $0.10.

End-of-year tangible book value is projected at $1 billion to $1.05 billion, which would be good for annual growth of better than 16%. The firm expects to add 2.3 million new members for 2024, which would amount to 30% year-over-year growth.

My Thoughts

Excellent quarter. Muscular guidance. Noto is not missing a beat. Long-time investors in SOFI, I am sure, have noticed that every time the stock has dipped, really since Noto took on this role, he has added to his stake in the firm with his own cash. Noto, as he has shown throughout his career, is a leader. The stock popped nicely just after these earnings were released but has come in sharply now that the opening bell has rung. l expect to add to my long position this morning. The stock is close to unchanged as I complete this note.

This chart was included in a Friday piece that I ran ahead of these earnings. The chart is obviously still valid. To readers who missed that Friday piece, this is new. We see the same falling-wedge pattern and same double-bottom reversal pattern that we showed you a couple of days ago. Relative strength is now an overbought 80, up from an overbought 78.

The daily MACD has pushed into a bullish posture with the 12-day EMA running nicely above the 26-day EMA and the histogram of the nine-day EMA well into positive territory. At this point, I am still looking for the stock to consolidate and would welcome just that. This would be healthy for the further development of a constructive chart.

We are sticking with Friday's new pivot at the $10.65 level that had been resistance for the stock both last Wednesday and Thursday. We emphatically reiterate our target price of $13.50 at this time with an upward bias.

SoFi Technologies (SOFI)

Target Price: $13.50 (reiteration)

Pivot: $10.65

Add Some: Down to 50-day SMA (currently $8.40)

Panic: On a loss of both the 50-day and 200-day SMAs.

At the time of publication, Guilfoyle was long SOFI equity.