Amazing what a little profit can do for your stock. SoFi Technologies (NASDAQ:SOFI) stock soared following its recent Q4 results, in which recorded its first GAAP profits. SoFi gained more than 500,000 new customers and added 695,000 new products. It now has over 11 million total products, which might seem a prodigious number, but what it really shows is SI+OFI’s cross-selling potential.
It ended the fourth quarter with more than 7.5 million customers, a 44% increase year over year. That suggests it’s selling around 1.5 products to each customer, but it’s a 41% jump from last year. That’s fantastic growth for SoFi Technologies but can it keep the momentum going in 2024 and beyond? Let’s dig in to find out.
A Profitable Quarter and SOFI Stock
I’ve admitted to being all over the map when it comes to SOFI stock. Earlier this month I wrote:
“I’ve waffled on SoFi Technologies all year long. I saw it as too risky as the stock continued to rise and figured it could continue its next leg higher despite the risk just before it fell.”
However, in addition to concluding it was too high-risk for my tastes, I predicted it would surprise Wall Street come earnings time. I said buying the stock would be better for someone with an appetite for the volatility SoFi stock offered.
SoFi has its first GAAP profit of $48 million under its belt. It also posted a record $181 million in adjusted EBITDA, a 159% gain over last year and up 85% sequentially. It also achieved the 30% profit margins it was seeking and all three of its operating segments were profitable.
This is phenomenal progress for SoFi. It is expecting GAAP profits in the first quarter and full-year profits of $95 million to $105 million. That’s because of the traction its products are getting. Lending products leapt ahead 24% year over year, but financial products are growing even faster. They were up 44% in the fourth quarter.
Living on Borrowed Time
Student loan refinancing was where SoFi made its mark. The three-year pause on repayment during the pandemic and afterward brutally devastated lenders, SoFi included. But with repayments started again, it appears to be driving business to the digital banks.
It was previously noted some 40% of all student loan borrowers missed their first payment when forbearance ended last October. That’s a huge number and reflects both the state of individual finances and the economy. Runaway inflation eroded buying power and whatever wage increases workers earned. People just had little money left to pay back their loans.
It’s a dual-edged sword for SoFi Technologies. Borrowers will want to refinance their loans to get a better handle on their money. The aggressive interest rate hikes engineered by the Federal Reserve didn’t help them out but it would encourage borrowers to turn to SoFi for help.
Still, borrowers remain in a precarious place. Debt levels are soaring and savings are shrinking. Defaults would be bad for SoFi’s new found profitability. Yet it’s notable the lender’s provision for credit losses eased considerably in the fourth quarter.
Last time out, those reserves had increased substantially year over year, but now they were down from last year. SoFi’s loans held for investment more than doubled.
SoFi Stock is Solid
SoFi Technologies looks like it’s moving towards a more firm financial footing. Business is booming, the risks with its operations are lessening, and it is attracting more and more customers.
The digital bank is still a risky stock because of the financial condition of its customers. Yet again, those with an appetite for risk may just find SOFI stock can continue its meteoric rise going forward.
On the date of publication, Rich Duprey did not hold (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.
