Since March 2022, SoFi Technologies (NASDAQ:SOFI) stock has traded in a tight range between $5 and $10. The fintech’s share price almost reached double digits at the end of 2023, its highest level since last July’s 52-week high of $11.70. SOFI traded over $25 in January 2021, which is hard to believe.
It’s spent enough time in a tight range. It’s time to move into double digits and beyond. What does it have to do for me to say yay to buying in 2024? Or, what would make me say nay to SOFI stock in the year ahead? Here are my thoughts on the subject.
Galileo Must Deliver for SOFI Stock
I recently included SOFI on a list of three AI stocks leading the intelligent tech revolution. I was adamant that the company’s $1.2 billion 2020 acquisition of Galileo Financial Technologies would be a big part of its double-digit charge in 2024.
When Galileo was acquired, it had been working with SoFi, providing it with payment processing solutions for SoFi Money. Its other large customers include T. Rowe Price (NASDAQ:TROW) and H&R Block (NYSE:HRB). CEO Anthony Noto proactively went after the company so that it could secure its future as a fintech leader.
Last October, I commented that the company’s ongoing expansion into Latin America would eventually pay dividends.
“The company’s March 2022 press release announced its expansion into Colombia stating, ‘The combination of Technisys’ platform with Galileo will uniquely support multiple products — including checking, savings, deposits, lending and credit cards — as well as future products, all surfaced through industry-leading APIs,’” I wrote on Oct. 12, 2023.
If you own MercadoLibre (NASDAQ:MELI) stock or follow the Latin American e-commerce and payments giant, you know just how digitally advanced the financial services industry has become in the region.
The company’s Technology Platform segment is Galileo and Technisys, the banking platform it acquired in March 2022. In the nine months ended Sept. 30, 2023, it generated $255 million in revenue and a contribution profit of $64.2 million (25% margin).
With Galileo’s creation of Cyberbank Konecta, its AI-driven digital assistant, SoFi has reduced its response time from customer inquiries by over 65%. It’s another example of why it made sense for Noto to acquire it.
As AI becomes an integrated part of fintech, SoFi should benefit immensely from Galileo’s contribution. It’s got more growth potential ahead.
Profitability Is a Must
The company has made significant strides in 2023 in deposits, new members, adjusted net revenue growth, and non-GAAP profitability.
As of Sept. 30, it had $15.61 billion in interest-bearing deposits, more than double from $7.27 billion at the end of 2022. It finished the quarter with over 6.9 million members, 47% more than in Sept. 2022. Its adjusted net revenue should be $2.06 billion based on the midpoint of 2023 guidance, up 34% from $1.54 billion in 2022, with adjusted EBITDA of $391 million, up 173% from $143 million.
SoFi’s business improved considerably in 2023 by every key productivity indicator, so its stock gained 85% in the past year.
However, if the company doesn’t deliver GAAP profitability in 2024 (my InvestorPlace colleague Chris MacDonald suggests it will make a GAAP profit of six cents). I’m not sure investors will be very patient if it doesn’t. A misfire could keep its share price in the lower half of the $5 and $10 range I referred to in the introduction.
While there is risk involved in SOFI stock, the risk/reward proposition is tilted in your favor. I’d say it’s a yay rather than a nay in 2024.
To reduce your risk, consider options. The June 21 $10 call has 155 days to expiration. Its ask price as of writing was $0.62, a 6.2% down-payment on its shares.
In the worst case, the shares don’t move higher, and you’re out $62.
On the date of publication, Will Ashworth 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.
