SoFi’ Technologies (NASDAQ:SOFI) is well-known as a company primarily devoted to student loan refinancing. This business is booming, and is certainly where most investors should spend their attention with this fintech stock.
However, as I’ve noted in a number of recent pieces, SoFi is more than simply a student loan financier. Rather, the company has delved deep into the world of digital banking. The company now provides brokerage solutions, along with checking and savings accounts, creating an all-in-one fintech hub. This has resulted in diversified revenue streams, which is a clear plus for investors.
SoFi’s appeal to younger generations sets it up for substantial 2025 growth. With a focus on attracting younger consumers and offering value-added services, SOFI stock appears to be an attractive long-term investment, for those who truly believe in the future of the financial technology (fintech) space.
Here’s what investors should consider when looking at SoFi right now.
SOFI Fundamentals
In Q2 2023, SoFi’s Financial Services segment surged, with revenues up 223% to $98.1 million, contributing more than 20% of the $488.8 million adjusted net revenue. This shift is from an 8.5% contribution in Q2 2022. Notably, the segment’s contribution loss shrank to $4.3 million, a 92% improvement.
SOFI stock is up 80% year-to-date at $8.12. Analysts project $8.00 to $16.00 price range with 120% growth estimated for the next year. Market cap rose from $4.28 billion last September 2022 to $7.77 billion in 2023, attracting investors. Institutional holdings are at 35.51%, indicating confidence. The stock’s 52-week change is 64.57%, far exceeding the S&P 500’s 21.84%.
Selling nearly eight million financial products in the quarter, a 47% year-over-year increase, demonstrates this segment’s transition into a profit driver. I think this sort of diversification makes SoFi a comprehensive digital finance company, and should improve the company’s outlook moving forward.
Student Loan Payments Continue
Despite various attempts from the Biden administration to continue the halt on student loan payments, they have resumed. This has opened up SoFi’s biggest market, and should continue to provide the company with cash flow growth, as it looks to originate a significant number of private loans, paying off federal student loans (which happen to be non-bankrupt able debt).
While the Biden Administration has managed to forgive the student loans of a small fraction of overall borrowers, and will likely continue to try to forgive debt for families burdened by these payments, the fight appears to be nearing an end. With more certainty in place, investors should be able to better forecast SoFi’s cash flows.
I’m of the view that SoFi’s student loan refinancing business should remain strong for years to come. However, as I’ve mentioned many times before, it’s the company’s focus on becoming a fully-integrated digital bank that should excite most investors right now.
Bottom Line: SOFI is a Profitable Fintech Stock
SoFi’s Q2 numbers were very impressive, for the average person who may not have delved into the company’s financials. SoFi posted 37% year-over-year revenue growth to $498 million, driven by an increase of 44% in the company’s customer base. Full-year guidance was raised to more than $2 billion in adjusted revenue at the company’s midpoint. As government-backed student loan payments resume, potential for business growth accelerates. Thus, despite student loan refinancing challenges (rising interest rates don’t help SoFi’s cause), I do think this stock is poised for a rebound from here.
I think it’s worth pointing out that SoFi added 584,000+ members in Q2 2023, now totaling 6.2 million. This larger customer base should allow the company to cross-sell products on its platform. Thus far, it appears SoFi is doing a good job of this, with total products sold to customers reaching 9.4 million this past quarter, up 43% year-over-year. When investors factor in positive adjusted EBITDA of $77 million in Q2, with a 16% gross margin, there’s a lot to like about this company’s upside.
Finally, analysts anticipate growth of 31.3% and 24.4%, respectively, in 2023 and 2024. That’s an incredible pace for a company with long-term secular growth tailwinds. This near-term growth potential is largely expected as its student loan refinance business gains momentum; however, I think the company can maintain a higher-than-expected growth rate in out years, making this stock a buy at current levels.
On the date of publication, Chris MacDonald 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.
