Shares of the member-centric consumer bank SoFi Technologies (NASDAQ: SOFI) have been soaring. The stock shot up by 148% during the five months between June 30 and Dec. 1, 2024.
SoFi stock defied gravity for months but started falling recently. Investment-bank analysts aren’t convinced the underlying business has grown fast enough to support its lofty new valuation.
Is SoFi Technologies still a good stock to buy or has it run too far already? To find out, we’ll look at why it shot higher this year and why Wall Street isn’t so bullish anymore.
SoFi Technologies stock is rapidly growing its member base by originating heaps of unsecured personal loans. Investors who had held back due to fear it was underwriting bad loans were relieved to see delinquencies longer than 90 days decline for two consecutive quarters after peaking at 0.72% earlier this year.
|
|
Q3 2023 |
Q4 2023 |
Q1 2024 |
Q2 2024 |
Q3 2024 |
|---|---|---|---|---|---|
|
90+ Day Personal Loan Delinquencies |
0.48% |
0.56% |
0.72% |
0.64% |
0.57% |
Data by SoFi Technologies. Table by author.
The U.S. economy is entering a sweet spot for SoFi and its personal loan business. The Federal Reserve has already lowered interest rates by 0.75% in 2024 and another 0.25% reduction is widely expected on Dec. 18, 2024.
Lower rates can shrink profit margins, but the lending segment’s volume gains more than make up the difference. SoFi’s lending segment reported record revenue in the third quarter and a record contribution profit that increased 17% year over year to $238.9 million.
Lending isn’t the only SoFi operation that’s growing rapidly. Borrowers often sign up for checking, savings, and retirement accounts. In early 2023, the company’s financial services segment was still losing money. Since then, it’s been delivering a rapidly growing contribution profit that reached $99.8 million in the third quarter.
Instead of paying a software vendor to issue cards and process payments, SoFi Technologies owns the Galileo financial technology platform. SoFi is one of many financial institutions, including Toast and H&R Block, that use Galileo to automate financial tasks. Contribution profits from its tech platform segment rose to a record $33 million in the third quarter.
SoFi Technologies is growing rapidly while keeping expenses under control. Management expects net income on a GAAP basis to reach $205 million at the midpoint of its guided range. This represents a slight decline but is still heaps better than the heavy losses it was reporting just a year ago.
