SoFi Technologies, Inc. (NASDAQ:SOFI) reported results for its first fiscal quarter of 2024 which were generally good. Yet shares are down pre-market approximately 6% which, I believe, is not rational considering the strength of SoFi's customer growth. Investors may have expected even stronger guidance for FY 2024 revenues, but the sell-off is inexplicable to me, given that SoFi beat expectations.
SoFi completed another quarter of impressive net account acquisition as the Fintech added a massive 600k new members to its platform. Additionally, the Fintech raised its adjusted EBITDA outlook for FY 2024 on the back of a strong resurgence of the student loan origination business. I believe SoFi continues to make a highly attractive value proposition for growth investors with the current momentum, and I would not be surprised to see the Fintech grow to 10M customer accounts by the end of the current fiscal year!
Previous rating
I rated shares of SoFi a strong buy -- Proving All The Naysayers Wrong -- in February 2024 because the Fintech revealed consistent momentum in its revenue base, especially regarding the vital Financial Services product category. In the first quarter, the Fintech had its best-ever quarter in terms of net customer acquisition, on-boarding more than 600k new customers to its platform, so this momentum is definitely continuing. SoFi also raised its adjusted EBITDA outlook and once again beat EPS estimates. With shares trending up pre-market, investors may finally see a reversal in the stock's fortunes.
SoFi beat Q1 '24 estimates
SoFi beat consensus expectations regarding its first-quarter earnings and revenues: the personal digital finance company reported $0.02 per-share in GAAP earnings on adjusted revenues of $580.7M. SoFi’s reported earnings beat the consensus estimate by $0.01 per-share in earnings, while top-line results beat by $21M.
SoFi’s core business proposition is only getting better
The core value of an investment in SoFi is that the company is doing an excellent job in terms of customer acquisition. The financial services company ended the first quarter with 8.1M members on its platform, which was the highest amount ever. The firm added a massive 622k new customers to its personal digital finance platform, which similarly was the highest-ever net acquisition amount in the Fintech's history.
In my last work on the Fintech, I projected that SoFi could grow to ~10M customer accounts by the end of this year. The first-quarter figures confirm my growth projections and I believe that at the current growth rate, SoFi could grow to 10M accounts by year-end and to 13-14M accounts by the end of FY 2025. The surge in customer accounts and growing member base resulted in SoFi reporting total net revenue of $645M, showing 37% year-over-year growth.
Student loan business has a lot of momentum again
The end of the student loan repayment moratorium in FY 2023 has led to a restart of SoFi’s student loan origination business which continued to shine in the first fiscal quarter with a growth rate, year over year, of 43%. In FY 2023, student loan originations went up only 17%, so SoFi is seeing a material re-acceleration of this business at the moment. Student loans weren’t the fastest growing product category for SoFi (home loans were, with a growth rate of 274% Y/Y), but the restart of student loan repayments is a driving force behind the company’s raised forecast for FY 2024.
Raised guidance amid continual account acquisition momentum, normalization in student loans
SoFi Provided an update to its 2024 adjusted EBITDA guidance, which the Fintech increased to a new range of $590-600M. Previously, the Fintech guided for 580-590M in adjusted EBITDA, so based off the mid-point of guidance, SoFi raised its EBITDA projection by 2% over its earlier forecast. Revenue projections were also increased to a range of $2,390-2,430M, implying a 1% increase at the mid-point of guidance. SoFi also expects to be fully profitable on a full-year basis in FY 2024, which many investors the Fintech could achieve.
SoFi’s valuation
The key to SoFi’s growth is the company’s rapid pace of customer acquisition, in which the Fintech is currently crushing it. As long as SoFi executes well here, revenue growth is sure to follow as newly acquired customers tend to increase their spending on the SoFi platform over time. This is the result of SoFi providing a one-stop banking solution that includes all aspects of a person’s financial life, and the product offering encompasses everything from insurance to financial services products and home loans.
SoFi is currently valued at a P/S ratio of 2.8X, which is not an excessive multiplier to pay for a Fintech that is growing its customer base this quickly, in my opinion. SoFi is still relatively small in terms of revenue volume, at least compared to PayPal (PYPL), but the valuation looks nonetheless attractive to me considering the momentum that is behind the massive amount of customer acquisitions in Q1'24. SoFi used to be valued at a higher 3-year average P/S ratio of 4.3X in the past, which is a valuation level that I believe SoFi could return to in one or two years... if the Fintech can maintain its growth momentum. Based off a 4.3X P/S ratio, shares of SoFi could have a fair value of $13. This is a dynamic number, and it may rise or fall together with the company's GAAP achievements, customer growth trajectory and change in revenue estimates.
Risks with SoFi
The biggest risk for SoFi is a potential slowdown in the current pace of customer acquisition rates, which would likely have a trickle-down effect on the company’s revenue potential. SoFi is also barely profitable, so any kind of curveball the market may throw (higher interest rates, as an example), may result in SoFi reporting negative GAAP earnings in FY 2024... which investors likely wouldn't appreciate very much.
Final thoughts
SoFi had a very successful first fiscal quarter that saw continued momentum in customer acquisition. The Fintech also raised its outlook for FY 2024 adjusted EBITDA (by 2% at the mid-point) and the company continues to see a lot of upside momentum in its student loan origination segment. Given the increased adjusted EBITDA forecast, significant net-additions to the SoFi platform as well as a very reasonable valuation factor (given the growth potential), I continue to see SoFi as a very solid recovery investment in 2024. I don't believe the sell-off makes any sense, and I am loading up the truck today!
The Asian Investor
I look for high-risk, high-reward situations. Five largest portfolio holdings: Bitcoin, SoFi, Alibaba, PayPal, Western Alliance. Early buyer of cryptocurrencies. I live in Thailand :)
Analyst’s Disclosure: I/we have a beneficial long position in the shares of SOFI, PYPL, UPST either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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