SoFi Technologies (NASDAQ:SOFI) stock has shown resilience throughout 2023, gaining approximately 80% year-to-date, despite a partial retreat. With a current market cap of $7.67 billion, the financial services company has outperformed the S&P 500 Index ($SPX). However, it remains 71% below its three-year high of $28.26, prompting a closer look at whether now is the opportune time to buy at a discounted valuation or if investors should consider selling to lock in profits.
Impressive Q3 Performance Highlights SoFi’s Growth Trajectory
SoFi’s momentum remained robust in the face of macroeconomic challenges, as evidenced by its stellar Q3 performance. The company achieved record revenues for the 10th consecutive quarter and secured a record adjusted EBITDA for the fifth successive quarter. Notably, Q3 reported adjusted net revenue of $531 million, marking a significant 27% year-over-year increase. The adjusted EBITDA also saw a remarkable surge of 121%, underlining the company’s strong performance across all business segments.
During Q3, new members increased by 47%, reaching 717,000, contributing to a total member count approaching 7 million. The company added over 1 million new products in the quarter, totaling 10 million products by the quarter’s end. A notable milestone was achieved in the Financial Services segment, which reported a positive contribution profit for the first time, enhancing overall profitability despite aggressive growth initiatives.
SoFi’s lending business exhibited strength, with net interest income rising by 90% year-over-year in Q3. The net interest income now surpasses expenses by nearly two-fold. High-quality deposits increased by $2.9 billion quarter-over-quarter, reaching $15.7 billion by the end of the quarter, with 90% originating from direct deposit members and 98% insured. The company’s expanding deposit base is integral to its growth strategy, showcasing resilience amid challenging market conditions.
Upward Revision of 2023 Guidance Reflects Confidence in Future Growth
Bolstered by the strength of its business, SoFi revised its 2023 guidance upward. The company increased its 2023 revenue guidance to a range of $2.045 billion to $2.065 billion and adjusted EBITDA to be between $386 million to $396 million. This upward adjustment from the previous guidance reflects SoFi’s confidence in its continued growth and financial performance.
Catalysts for Future Growth
SoFi is well-positioned for robust growth in the coming quarters, driven by multiple catalysts. Expansion in members and products, improved operating efficiency, and growing margins indicate sustained profitability. The company’s commitment to stringent credit standards in its personal loan business has resulted in robust credit performance, with on-balance sheet delinquency rates and charge-off rates remaining below pre-pandemic levels.
SoFi’s diversification in revenue streams, acceleration in Technology Platform revenue, strong balance sheet, growing lending capacity, and focus on profitability contribute to its positive growth outlook.
Analyzing SoFi Stock: Buy, Hold, or Sell?
While SoFi stock has experienced significant appreciation, some Wall Street analysts are cautious, citing macroeconomic uncertainties that could impact loan originations and pose short-term challenges. Among the 18 analysts covering SoFi stock, five recommend a “strong buy,” 11 suggest a “Hold,” and two maintain a “Strong Sell.” The average price target is $9.25, indicating a potential upside of about 15% from current levels.
Despite mixed analyst sentiments, SoFi’s strong quarterly performance, expanding customer base, robust interest income, high-quality loan originations, and growing lending capacity suggest a positive long-term growth trajectory. Investors with a long-term perspective may find value in accumulating SoFi stock at its current trading price.
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