Following some rough sessions for the financial technology (fintech) powerhouse, SoFi Technologies (NASDAQ:SOFI) sparked optimism after delivering strong results for its third-quarter earnings report. Subsequently, analysts at Morgan Stanley upgraded SOFI stock to “equal weight” from “underweight,” citing that risks are now more than priced in. Nevertheless, the ambitious enterprise still faces a challenging environment.
First, SOFI stock soared during the pre-market session following the release of the underlying Q3 report. According to TipRanks, the fintech’s losses narrowed to 3 cents per share on an adjusted basis. In comparison, the company posted a loss of 9 cents in the year-ago quarter. What’s more, analysts anticipated a loss of 8 cents.
However, the real star of the show was the top line. Specifically, SoFi’s adjusted revenues jumped 27% on a year-over-year (YOY) basis to $530.7 million. This record-breaking tally beat analysts’ target calling for $511.3 million. Moreover, the company added more than 717,000 new members in Q3. As such, the total membership count now stands at more than 6.9 million, representing a 47% YOY lift.
Adding to the enthusiasm, management adjusted its fiscal year 2023 outlook upward, anticipating net revenue to land between $2.045 billion and $2.065 billion. Previously, the guidance came in at between $1.974 billion and $2.034 billion.
Further, the leadership team projects full-year adjusted EBITDA to hit between $386 million and $396 million, representing a 48% incremental adjusted EBITDA margin per TipRanks.
SOFI Stock Attracts the Bulls, but Challenges Remain
Not surprisingly, given the earnings print, bullish investors piled back into SOFI stock. Providing enhanced credibility, Morgan Stanley analysts upgraded shares as the fintech’s valuation fell below their price target. Further, market expert Jeffrey Adelson felt a bit more confident about the company’s near-term outlook.
In particular, the analyst noted that Q3 net interest income came in above forecast on “faster loan growth, strong deposit flows, and ability to orginate at even higher loan yields than expected.” Adelson also added that potential loan sales for Q4 might lower risks associated with a capital raise in the near term, per reporting from Seeking Alpha.
The expert also stated that efficiencies improved faster than expected while student loan refinancing originations were stronger than forecasted. Still, SOFI stock encounters difficulties that prospective investors should assess carefully.
For one thing, SoFi helped underwrite the Instacart (NASDAQ:CART) initial public offering (IPO), which was a first for the company regarding traditional new listings. However, since the IPO, SOFI stock has largely incurred a downward trek. Prior to Instacart’s debut, experts worried that SoFi may have offered much to participate in the new listing.
Second, the mix of loan originations still leans heavily toward personal loans. To be fair, in Q3, personal loans accounted for 75.3% of total loans, which declined against the Q2 allocation due to the rise in student loans. However, personal loans are unsecured, adding significant risk if the economy falls into recession.
Why It Matters
At the current juncture, analysts peg SOFI stock as a consensus hold. This assessment breaks down as five buys, six holds and two sells. Overall, the average price target lands at $9.96, implying about 36% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
