Anthony Noto, CEO of SoFi Technologies, Inc. commented: “We had an exceptional second quarter. Our relentless focus on product innovation and member growth across our portfolio of businesses not only drove strong results today, but we expect that they’ll fuel financial growth for years to come. Our one-stop shop strategy continues to deliver strong, diversified growth and profitability, despite macroeconomic volatility.”
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Overview
Another strong quarter for the company and my thesis remains intact. Noto continues to execute despite his somewhat bearish views of the market.
You can find the full earnings deck release here.
You can find the financial reports here.
Highlights
SoFi Invest recorded a 58% year-over-year increase in assets under management in the second quarter, driven largely by net flows. Alternative assets and mutual funds, which the company fully rolled out earlier this year, drove 12% of all segment net flows during the quarter. Additionally, the company expanded asset transfer options, providing members a one-click way to transfer individual assets to SoFi accounts.
SoFi continued to build its brand as the company pursues its vision to become a top ten financial
institution, increasing unaided brand awareness by about 40% year-over-year.
SoFi Money now offers Zelle money transfer capabilities, one of the most requested features and an
element of the company’s overall money movement product pipeline.
SoFi Credit Card improved acquisition capabilities and introduced a 10% cashback boost for SoFi Plus members that has shown positive results, while credit performance improved meaningfully.
In Lending, small and medium businesses can now apply and get approved offers from lending partners all on SoFi. The company also introduced the capability to close home equity products instead of brokering them out, dramatically increasing potential revenue per loan.
Tech Platform continued to be a key centre of innovation and introduced new wire capabilities, improved managed service in the cloud, and launched 3DS, which adds another layer of security to digital card transactions.
Updated Vizual Summary Charts
Here’s what I like:
• Member count still grinding higher. Up 41% YoY
• Products climbing higher still 36% YoY. Lending up 19% YoY and financial services up 39% YoY
• I love that they clarified the net charges offs, making the data a lot more digestible. Finally putting it to bed and showing they are below trend (6.07%) with the oldest at 5.02%. So that’s one bear shot in the face.
• The full yeah 2024 guidance for financial services net revenue is a whopping 80% increase on 2023 levels. I can’t overstate how bullish that is.
• We’ve heard talk of lending being increased but we finally see it in the numbers. They set a new all time high in Q2 which was a 22% increase YoY.
• Cash is still higher than debt, love to see that.
• Galileo accounts still edging higher, though tech was not providing as much revenue as expected.
• Loan originations still growing overall. Expecting home loans to move more as rates fall and personal loans to ramp up.
• New credit cards and Sofi plus product launch coming
• Noto’s closing remarks… DAAAAAAMMNNNNNNN!!!! Pretty fiery and I LOVED it.
Here’s what I don’t like:
• Tech revenue was lower than expected. Bears will love this, likely to see commentary along the lines of ”The multiple is too high for just a bank”. My argument is, 1 quarter isn’t enough to base a short report on.
• Deposits a little light.
Guidance
Sofi s expected to maintain an upward trend in revenue whilst maintaining profitability. Not too sure where the Ebit estimate is coming from though… Will look more into that.
We can take a more detailed look at guidance on the earnings deck though.
We expect to deliver:
- Financial Services net revenue growth of more than 80% versus 2023 levels
- Lending adjusted net revenue of at least 95% of 2023 levels
- Tech Platform net revenue percent growth of mid to high teens versus 2023 levels
- GAAP Net Income of $175 – $185 million*
- Adjusted EBITDA(6) of $605 – $615 million
- GAAP Diluted EPS of $0.09 – $0.10
- $800 million – $1 billion of Tangible Book Value growth
- Total Capital Ratio over 16% at year end
Regularly lifting guidance and remaining profitable, love it.
Activity
I know what you’re thinking… DAAAAAAAMMMNNN that’s a lot of insider selling, and you’d be right, it is a lot. However, most of the came from the Qatar Investment Authority selling out of the stock. I wrote a post addressing this already and you can find it here. The sale listing is also below…
Short interest is still really high. Realistically how much more can the shorts want to gain from this stock? Institutional ownership continues to rise, but we can get a more detailed look at this below.
Balance Sheet Summary
What a difference a year makes.
The Charts
Price was moving up very nicely but it looks like the bears wanted to double down and push it lower, is suspect more for some covering than anything, well see if the short float comes down in the week. I don’t have direct live data for the short float to confirm this right now though. The broader market did sell off during the day, likely in preparation for the fed rate decision the following day but Sofi and PayPal did end up the least punished. Something to note was that PayPal had some very nice numbers, likely stole their thunder a bit too. Shame they both reported earnings during the pre market on the same day really. Not ideal given their similar sector/investor base.
I posted a short video detailing price action and some earnings nuggets to:
Conclusion
There’s a lot of sentiment headwinds for them right now, with being a newer ”bank” they get lumped in with regionals and more risk on stocks. The bears are having a field day with it but every time they find something to nag about, Sofi comes out and tells us the exact opposite is true. I expect to see bears changing tune to focus on the flat tech rev, but I also expect to see that jump higher in the next earnings call. So good luck to them.
I still love Sofi and have strong conviction in it. After this call, I’m feeling even more confident about my position. I still believe its very cheap right now and should have no trouble getting over $12, though I can’t provide a timeframe for this. It seems Noto is starting to feel a little more confident the economy is improving I believe we will see some big moves as rates comes down and that loan book can really start growing. With the high short interest, its looking like its going to be explosive when it happens, unless bears are smart enough to start exiting their positions ahead of time. In his recent interview and during the earnings call he exuded confidence and he’s been putting his money where his mouth is. I urge you to at the very least check out his closing remarks from the earnings call, I got chills!
