SoFi Technologies Inc. (NASDAQ:SOFI) soared by as much as 38% after posting positive 2022 financial results and bullish Q1 and FY23 guidance.
Since the company offers a wide range of financial services, SOFI appears to be on the right track to profitability - with the management projecting GAAP profitability by Q4 2023. Given that SOFI is constantly offering new products and services, it was not surprising to see the company shatter analyst estimates for revenues and EPS.
This is mainly due to SOFI’s rapidly growing member base which reached 5.2 million at the end of 2022. Based on this, SOFI could be poised for major growth in 2023 as it continues to introduce new products that attract members.
Revenue Growth
In 2022, SOFI realized more than $1.5 billion in revenues mainly due to its impressive suite of financial products and services. With this in mind, SOFI’s impressive revenue growth was mainly driven by the growth of its personal lending segment. Through this segment, SOFI realized $530 million in net revenues - exceeding its lending cost of $443 million.
These cost savings are a direct result of SOFI Bank which allows the company to use its deposits as a funding source for loans. In this way, SOFI is able to offer loans at a much lower cost of funding. The bank is also a major contributor to SOFI Money members’ growth, high-quality deposits, and improved levels of spending.
On that note, SOFI has always focused on the quality of its members. For this reason, SOFI’s members have a median FICO score of 745 which provides the company with the opportunity to witness strong cross-buying into other products. At the same time, SOFI’s members’ quality exposes the company to a low risk of default on its loans. In light of this, SOFI’s long-term room for growth is substantial.
Tech Segment Growth
With the goal of becoming the AWS of fintech, SOFI has an impressive suite of technology platforms thanks to its subsidiaries - Galileo and Technysis. SOFI has been working to combine both Galileo’s and Technysis’ capabilities to create the only vertically integrated banking technology stack.
These efforts are proving to be successful considering the growth this segment is witnessing. With this in mind, Galileo successfully signed 11 new clients in Q4 with 36% of new deals in B2B and 27% of new deals outside the US. Out of these deals, 9 are with companies that have existing customer bases. In this way, Galileo is witnessing impressive growth in new verticals and new geographies.
As for Technysis, the platform was able to sign 16 new clients in Q4 - including its first digital deal in Mexico. Considering this impressive growth combined with SOFI’s national bank license, the company is well-positioned to emerge as a winner during market cycles due to its diversified business model.
Limited Student Loans & Home Loans
Despite its impressive financial results, SOFI’s growth was limited by the continued lack of demand in student loan refinancing and home loans. With this in mind, student loan refinancing continues to be negatively impacted as borrowers wait for clarifications regarding the moratorium on federal student loan payments. Since this segment is a critical part of SOFI’s operations, the fintech giant could be on track to post record revenues once the moratorium is over.
Meanwhile, home loans are severely impacted by the macro environment of high interest rates - reducing the demand for this segment. Despite the fall in demand for these highly-profitable segments, SOFI’s diversified business operations are proving to be the company’s most impressive asset since it has navigated through these conditions successfully. In light of its growth potential, SOFI could be undervalued at its current market cap of $6.1 billion.
2023 Guidance
Based on the company’s impressive performance in 2022, SOFI could be on the right track to beat its revenue guidance in 2023. For the full year 2023, SOFI expects net revenues of $1.9 billion to $2 billion. At the same time, the company expects to reach GAAP profitability by Q4 2023. With the company expecting the moratorium on federal student loan payments to extend through June 30, SOFI could be heading toward an extremely profitable Q4 since repayments should begin 60 days after the end of the moratorium. Given the company’s efforts to diversify its business, SOFI could be a bargain for long-term investors at its current levels.
Technical Analysis
Looking at SOFI’s daily chart, we see a resistance at 8.27 which SOFI was unable to break through. Now, the stock is retesting its support but there could be more selling pressure since there is a gap near $5.90.
I’m waiting for a possible gap fill and for SOFI to retest its 200 MA support. While accumulation spiked on SOFI’s impressive Q4 earnings, it is witnessing a slight downtick which could be attributed to investors taking profits. Similarly, the MACD is bearish.
This is to be expected after its bullish move on earnings. Now that the RSI has cooled off on the daily chart, I’m waiting for an entry near support levels and a golden cross over the coming weeks.
Conclusion
Considering SOFI's impressive financial performance despite the low demand for student loans and home loans, the company could be a smart investment thanks to its room for growth.
With constant innovation for financial products and services, SOFI appears to be on track to become a leader in the financial services sector. Given the company’s bullish guidance for 2023 and its expectations to reach GAAP profitability by Q4, buying SOFI at current levels could prove to be a profitable long-term investment.