What’s Happening With SoFi Technologies Stock?
SoFi Technologies stock (NASDAQ: SOFI) has experienced over a 30% rise from its lows of under $10 in early April this year to $13 now. This can primarily be attributed to the company’s solid Q1 results and an upward revision to its full-year outlook. Our take on SoFi’s Q1 performance offers more details. After this recent rise, SOFI stock is now trading 190% higher when viewed over a longer timeframe from early 2023. This can primarily be attributed to:
- a 100% rise in the company’s P/S ratio to 5.1 now, versus 2.6 in 2022;
- a 78% rise in the company’s revenue from $1.6 billion to $2.8 billion; partly offset by:
- a 22% rise in total shares outstanding to 1.1 billion.
We’ll delve into the specifics of these factors. While SOFI stock has had a great run, if you want an upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
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What’s Driving The Revenue Growth?
SoFi’s robust revenue growth is propelled by expansion beyond its core lending business to become a “one-stop shop” for financial services. This diversification includes products like SoFi Money (banking), SoFi Invest (investing), and SoFi Relay (financial insights), alongside its traditional lending segments (personal loans, student loan refinancing, and home loans). This strategy has led to significant growth in its member base and product adoption. For perspective, the company’s member base doubled from 5.2 million in 2022 to 10.9 million now. SoFi’s 2022 acquisition of Technisys – a cloud-based core banking system – has been crucial for the company. Also, the company obtained a banking charter in 2022 allowing it to hold loans for investment and significantly grow its deposit base.
Within segments, Financial Services has shown exceptional growth, up 5x from $168 million in 2022 to $822 million last year. This is attributed to the strong adoption of products like SoFi Money, Relay, and Invest, as well as the rapid expansion of its Loan Platform Business. The company’s Lending segment has also fared well, up 30% over the same period. While student loan refinancing was historically a major revenue source for SoFi, its personal loans have been a significant driver of growth in recent years. The company has secured substantial commitments from institutional investors, including Fortress Investment Group and Blue Owl Capital, to purchase its loans, which helps diversify its revenue streams and reduce capital intensity.
What’s Behind The 2x Rise In Valuation Multiple?
SoFi’s Financial Services segment has been a critical driver of the company’s financial transformation, significantly enhancing overall profitability. Since 2022, SoFi’s operating margin dramatically expanded from -20.4% to 17.2% (for the last twelve months period) — a remarkable increase. SoFi’s 2022 banking charter was an important milestone, enabling the company to use low-cost deposits from its members, particularly those with direct deposits, as a stable funding source for loans. This switch from more expensive financing methods directly improved SoFi’s net interest income and overall profitability. This improved financial performance, coupled with strong sales growth and commitments from institutional investors, has reshaped investor sentiment.
The company’s price-to-sales valuation multiple doubled during this period, rising from 2.6x in 2022 to 5.3x in 2024, reflecting renewed investor confidence. This shift occurred against the backdrop of a challenging market environment, particularly the inflation shock of 2022 that precipitated a severe stock market correction.
During this tumultuous period, SOFI stock experienced a sharp decline, falling 83% from its Feb 2021 high of $26 to $4 by December 2022 – a more pronounced drop compared to the S&P 500’s 25.4% peak-to-trough decline. The stock is yet to recover to its pre-Crisis high.
But What Next? Is SOFI Stock A Buy At $13?
At its current price of $13, SOFI stock is trading at a price-to-sales (P/S) ratio of 5.3x, which aligns closely with its four-year average of 5.5x. However, there are compelling reasons to believe the valuation multiple could expand further. Firstly, the company’s strategic pivot toward higher-margin revenue streams through its Technology Platform (Galileo and Technisys) and Financial Services segments is attracting investors. This shift from a predominantly lending-focused model to a more diversified, technology-driven one may lead the market to assign higher multiples, recognizing the more predictable, fee-based income.
Secondly, SoFi’s consistent member growth and cross-selling success are proving crucial. As the company continues to expand its member base and efficiently cross-sells banking, investing, insurance, and lending products within its integrated ecosystem, investors may assign a premium to its valuation.
Finally, and most significantly, SoFi’s path to consistent profitability could be a major catalyst. Sustaining profitability, bolstered by improved operational efficiency and economies of scale, could result in a critical inflection point, as profitable financial services companies typically command premium valuations.
While these factors strongly support SoFi, investors should also consider the risks. SoFi’s stock previously fell over 80% during a major market downturn, highlighting its susceptibility to macroeconomic headwinds. With interest rates still elevated and ongoing trade tensions, there remains a risk of the stock declining.
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