Surpassing market estimates with its most recent earnings report, fintech company SoFi Technologies (NASDAQ:SOFI) saw a steep 10% decline last week. Despite trading 74% below its peak, SoFi continues to showcase strong financial health, though the market appears to continue to focus on the company’s headwinds.
The reality is there is a shifting macro landscape and plenty of reasons for investors to be bullish on the fintech sector long-term. Growth in financial services (both online and offline), as well as potential interest rate cuts, could boost online lending activity and encourage more debtors to refinance their loans with the most trusted partners.
The American banking sector is mostly dominated by big finance names like JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC). All three service a combined 218 million customers. New smaller banks have harder times competing in the market but SoFi is among the leaders in the online lending space. Last week, writer David Moadel discussed SoFi’s successes, and I have to agree with many of his points.
Most notably, SoFi has seen strong membership growth, adding 643,000 new members this past quarter which drove an 80% revenue surge in its financial services segment. The stock remains volatile amid fluctuating interest rates, but here are some top reasons why SoFi appears to be on the right track.
Q2 Earnings Surpassed Estimates
During SoFi’s Q2 2024, the company impressively exceeded estimates, recording revenue of $597 million and net income of $17 million. Additionally, as previously mentioned, SoFi also added 643,000 new members and over 100,000 new products. All segments posted profits, something that has become increasingly important for many investors in this space.
In Q2, SoFi’s lending revenue grew 3% year-over-year, reversing Q1’s decline. Personal, student and home loan originations surged, while the company’s financial services segment saw an 80% revenue increase and 39% growth in products. SoFi’s non-lending services, now a larger revenue driver, rose 46% year-over-year.
SoFi projects 17.6% revenue growth by 2026 and aims for Q3 revenue of $625 million to $645 million and full-year revenue of $2.42 million to $2.46 billion. Despite impressive results, SoFi’s stock remains below $10 per share, offering a buying opportunity before potential future increases.
SoFi Continues to Innovate
SoFi also launched new features like integration with Zelle through transfers and a 10% cashback for members of the SoFi Plus premium membership program. The company’s assets under management surged 58% year-over-year with the use of new investment tools and alternative assets. The ease of use and one-click transfers on its investing platform enhances its appeal.
SoFi’s management team envisions its tech platform as the “AWS of financial services,” expanding its B2B operations. While stock gains may be limited until interest rates fall, SoFi has significant long-term potential. Now that it’s seeing dramatic growth, SoFi is becoming one of the best U.S. financial institutions, making the stock a buy for investors willing to take a risk with short-term volatility.
Moreover, the company markets its comprehensive digital finance platform and it now offers a wide range of products. Such include credit cards, investments and loans. With an average deposit interest rate of 4.24%, SoFi aims to outshine traditional banks.
This strategy has led to a 40% year-over-year increase in membership, reaching 8.77 million, and $21 billion in deposits. Since acquiring its banking license in early 2022, SoFi’s growth has been notable, boosting its lending business significantly.
Buy SOFI Now
In July, SoFi stock and bank stocks surged on expectations of falling interest rates. Banks benefit from higher rates but face challenges with rate hikes. SoFi, being digital and rapidly growing, is more sensitive to interest rate changes than traditional banks. Its valuation relies on strong growth and stability, making it more reactive to economic news.
Although the company saw a successful Q2 report, the stock nearly fell 25% year-to-date. The company’s diverse revenue model and pivot towards financial services, now 45% of revenue, suggest future stability. Although the stock hasn’t risen, it presents a potential buying opportunity, with prospects for significant gains in the next two years.
On the date of publication, Chris MacDonald 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
