SoFi’s stock price trades 20% below below its June 2021 peak of $22.65 — the day the company merged with a special purpose acquisition company (Disclosure: I am a SoFi shareholder).
As an optimist, I see the bright side — in my October 2024 Forbes column about this financial services platform operator, SoFi shares traded 56% below their high. In the last year, the company’s stock has soared 136% to about $18.10 per share.
Analysts have mixed views on where SoFi stock will go next. Bulls cite SoFi’s Millennial- and GenZ-friendly user experience and a more profitable business model requiring less capital and depending more heavily on fees. Bears view SoFi shares as over-valued.
I favor the bullish case — although in my view the market will only react positively if SoFi exceeds investor expectations and raises its guidance when the company reports results on January 27.
SoFi Performance And Prospects
San Francisco-based SoFi is a financial service platform providing student loan refinancing options to the private student loan market as well as home loans, personal loans, and credit cards, noted the Wall Street Journal.
SoFi has grown rapidly and has improved its financial position considerably in the most recent quarter. SoFi’s customer count grew by a third to more than 10 million in 2024. Since 2019, the company’s membership has increased nine-fold, according to TipRanks.
This growth has made customers better off. At the end of September 2024, SoFi customers had paid down a total of $33 billion in credit card debt and borrowed $117 billion — including $9 billion in funded home loans, $44 billion refinanced student loans — while saving $1 billion in interest expense, TipRanks reported.
SoFi beat revenue and earnings per share expectations in the third quarter. The company’s revenue grew 30% to $697 million and exceeded analysts’ forecast by 10%. Meanwhile SoFi’s GAAP earnings per share was five cents — a big improvement from the previous years’ loss per share of 29 cents, according to TipRanks.
SoFi will report its fourth quarter 2024 results on Monday. Wall Street analysts expect SoFi’s EPS to double to four cents a share while revenue increases 23% to about $675 million, noted TipRanks.
My view is stock prices rise and fall on whether a company can beat expectations and raise guidance. Investors may find it useful “that SoFi has exceeded consensus EPS estimates in eight of the past nine quarters,” according to TipRanks.
Where Will SoFi Stock Go?
The bearish case against SoFi is that the shares are overvalued. Based on 15 Wall Street analysts offering 12-month price targets, SoFi stock is about 27% higher than their average target of $13.19, noted TipRanks.
The bullish case for the stock is SoFi’s digital user experience which enables the fintech to win younger consumers from banks. “We believe that alternatives to traditional consumer finance and bank cards will gain momentum as younger demographics seek better, more transparent financial experiences,” noted William Blair fintech research analyst Andrew Jeffrey in a report featured by TipRanks.
Jeffrey sees SoFi winning market share and improving its profitability. “Share gains will be driven by younger consumers seeking better UX; superior digital experiences; a full suite of investment advice, savings, spending, and investment solutions; and perhaps most importantly simple, real-time credit decisions,” he noted.
He also sees SoFi becoming more consistently profitable. “As the company evolves into a capital-light, fee-based model, our expectation is that the stock’s valuation will expand, reflecting growing investor comfort with financial visibility, more transparent accounting, a growing capital cushion, and rising long-term profitability,” he concluded.
One of the reasons I have held on to SoFi stock is CEO Anthony Noto’s vision for the company’s future. “You’ll see more safety and security, more iteration and innovation,” he told Wharton Magazine.
“SoFi is on the path to be that winner who takes most in the transition of the financial-services industry to a digital leader. As it relates to the industry, for the first time in the history of banking, we’re on the precipice of being able to force big incumbent banks to innovate,” he added.
SoFi is using generative AI in a way that could add significant value. “We want to answer three questions for you every day,” he said.
“When you go to SoFi’s home feed, we’re trying to show you what’s happening in your financial life that day but also proactively say to you, ‘Anthony, this is what you must do today to achieve your goals. This is what you should do. And this is what you can do,’ ” he concluded
Based on the case studies iof JPMorgan, Goldman Sachs, and State Street in my book Brain Rush, Noto’s approach to generative AI could put SoFi ahead of the pack.
Yet with 12.2% of the company’s float sold short, according to the Journal, many investors are betting against SoFi stock.
Unless SoFi exceeds expectations and raises guidance on January 27, the stock will fall. I am betting SoFi will do the right thing — in which case short sellers may have to buy the stock as investors bid up its price.
Disclosure: I own shares in SoFi Technologies – starting as an angel investor in 2014.
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