SoFi Technologies (NASDAQ: SOFI) stock is down roughly 70% from its 2021 high, but the business has passed a big financial milestone and might grow revenue by double-digits for years. When its founders were investigating AI at Purdue University in 2013, they founded SoFi as MoneyLion. New management took charge when the company's toxic culture surfaced in 2017. This leadership team implemented fresh growth goals that continue today.
SoFi Technologies is a bank and fintech platform that helps users borrow, save, and invest. This gives it different revenue streams and cross-promotion. Over half of their 2023 revenue came from lending. Lending climbed 21% year over year and is SoFi's main business because it's simpler to upsell consumers on other products after establishing a relationship.
The technology segment, which comprises a digital payments app and a banking platform for financial services providers, is its smallest and most speculative operation. SoFi's tech division revenue climbed 12% in 2023, although it accounts for a small portion of lending revenues. Leadership claims it's in "revenue acceleration mode," so tech goods may expand, but I don't see the enormous potential. SoFi's financial services section will drive its growth over the next five years.
115 percent rise in one year Two years after SoFi's management team was revamped, the business added SoFi Credit Card, SoFi Invest (online brokerage), SoFi Checking and Savings, and others in 2019. These financial products and SoFi's popular loans go together. The corporation has several opportunities to sell more products and acquire more customers.
Financial services is less than one-third of SoFi's lending, yet it surged 115% year over year in Q4 and enabled the firm make a GAAP profit for the first time. This division's 2023 revenue was $437 million, more than double its 2022 revenue of $168 million.
SoFi's financial services investments are paying off. SoFi Credit Card and Invest posted an 18% profit margin despite executives saying they are actively investing at a loss. When upfront spending drops, this number should rise. One near-term macroeconomic element could accelerate SoFi's ambitious aspirations, but otherwise, it's a good growth stock.
Net revenue rose 35% to $2.1 billion for SoFi in 2023. Through 2026, management expects 20%–25% compound annual growth "assuming no meaningful change in the macro environment." A steady 20%–25% increase for years sounds wonderful, right? However, economists expect (and the Fed has announced) interest rate reduction this year, which should improve SoFi's top line.
SoFi's home loan business benefits from increased home prices because higher rates limit how much "house" people can buy. SoFi Invest would attract investors seeking better yields. Lower interest rates on SoFi Credit Card might attract new cardholders. Credit card interest rates are greater than ever since 1994. The Federal Reserve reducing interest rates would ignite SoFi's fast-growing financial services section, which is its future growth engine.
Even if interest rates don't fall this year, consumers will need to borrow, save, and invest, and SoFi has a proven client growth system. SoFi is poised for years of expansion regardless of the Fed.
SoFi's major segment is loan, although financial services and technology could rise in 3–5 years. This business is different from a bank and should be evaluated accordingly. Two competitors have SoFi-like divisions. Robinhood started as an online stockbroker but now offers savings products and its CEO says more financial services will follow.
Robinhood is trading at 8 times trailing-12-month revenue, whereas SoFi is much cheaper at 4 times. Ally Financial has a 1.37 price-to-sales ratio, substantially lower. Ally is cheaper than SoFi, yet its revenue has scarcely grown since 2021, while SoFi's has risen 116%.
SoFi costs more than Ally, but you're getting into a higher-growth firm, and it's cheaper than Robinhood. Lending is a stable growth engine and one of SoFi's strongest ways to acquire new clients, but financial services will expand fastest in the short term. This success should make SoFi the most useful and accessible fintech startup in a decade.
Leadership continues to invest extensively in financial services, and the results show ROI. This is happening while its technology section is improving and may discover greater product-market fit, adding another long-term growth stimulus.
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