SoFi Technologies has garnered mixed reactions from investors. After announcing its third-quarter results, the company’s shares experienced a decline despite reporting strong figures and providing optimistic guidance. The stock saw significant growth at the beginning of October but has shown only modest gains throughout the year.
The company’s third-quarter performance was described as the strongest in its history, highlighted by a 30% increase in revenue to $697.1 million and a 90% rise in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $186.2 million. Tangible book value increased 16% year-over-year to $4 per share, with a 2% sequential growth.
The financial services segment led the positive results, doubling its revenue to $238.3 million and seeing its contribution profit climb from $3.3 million to $99.8 million. This growth was fueled primarily by SoFi’s loan platform business, a lead-generation service for borrowers that’s revenue surged fivefold to $55.6 million. Alongside this, interchange revenue significantly increased by 211% to $12 million.
Net-interest income in the financial services segment grew 66% to $154.1 million, driven by a rise in customer deposits. Overall, there was a 33% increase in the number of financial products used, and the annualized revenue per product jumped 53% to $81.
In the lending segment, revenue rose by 14% to $396.2 million, with net-interest income up 19%. Contribution profit increased 17% to $238.9 million, and total loan origination volumes saw a 23% rise.
Technology segment revenue saw a 14% increase, reaching $102.5 million, and contribution profit rose 2% to $33 million. The number of clients increased by 17% to 160.2 million. Across all segments, SoFi displayed robust growth.
Despite previous concerns about credit metrics, the company improved its charge-off rate, which declined to 3.52% from 3.84% in the second quarter. SoFi indicated that, even without selling some later-stage delinquencies, the net charge-off rate would have reduced from 5.4% to 5%.
SoFi’s personal loan borrowers have an average income of $164,000 and a weighted-average FICO score of 746, while student loan borrowers average $135,000 in income with a FICO score of 765. These figures indicate that the company is not primarily lending to subprime borrowers to sustain its growth.
Looking forward, SoFi forecasts a full-year adjusted net revenue of between $2.535 billion and $2.55 billion, representing a growth of 22% to 23%, surpassing previous estimates of 17% to 19% growth. Additionally, the company adjusted its EBITDA guidance to between $640 million and $645 million, up from $605 million to $615 million.
The forward price-to-earnings (P/E) ratio of 45 times and a price-to-tangible book value (P/TBV) of approximately 2.6 times suggests that SoFi is not inexpensive by traditional metrics. However, it is experiencing strong growth and improving credit quality.
Despite the solid quarter, SoFi’s stock declined, partly due to ongoing concerns about credit quality and potential deceleration. However, growth has accelerated, and credit quality has improved. With the Federal Reserve beginning a rate-cutting cycle and a stable economy, SoFi is well-positioned for future success in both loan origination and lead generation for other lenders.
However, given its valuation, the stock remains vulnerable to economic weakening, and it may be more prudent to hold onto the stock at its current levels.
