Anthony Noto, CEO of SoFi Technologies, Inc. commented: “This quarter was the strongest quarter in our history. Our results reflect how SoFi is consistently achieving durable growth, how our innovation and brand building are attracting more members and clients to our platform than ever before, and how we are delivering strong and
improving returns. Our Financial Services and Tech Platform segments now make up a record 49% of SoFi’s adjusted net revenue, up from 39% a year ago,” Noto continued. “In the third quarter, these businesses grew revenue by a combined 64% year-over-year, a testament of our continued execution and deliberate shift towards capital light, higher ROE, fee based revenue streams.”
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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. Worth noting though, that he sounded more upbeat about the macro environment this time.
You can find the full earnings deck release here.
You can find the financial reports here.
Highlights
Record Adjusted Net Revenue with Growth Accelerating to 30% Driven by 64% Combined Growth in Financial Services and Tech Platform Segments, representing 49% of Total Adjusted Net Revenue 35% Growth in Members and Strong Product Innovation Remain Key Drivers of Growth Company Recorded $174 Million in Capital Light, Fee-Based Revenue, Reinforcing Strength of Increased Mix of Higher ROE Revenue.
Management Raises FY24 Guidance, again. This is becoming a pattern!
Updated Vizual Summary Charts
Here’s what I like:
• Member count still grinding higher. Up 35% YoY. Full year 2024 should get us clear of the 1 billion members mark. Exciting!
• Products climbing higher still 31% YoY. Lending up 19% YoY and financial services up 33% YoY
• I love that they clarified the net charges offs for a second quarter in a row, making the data a lot more digestible and trackable. The rate is still tracking below the 2017 vintage rate.
• They reiterated full year 2024 guidance for financial services net revenue is a whopping 80% increase on 2023 levels. I can’t overstate how bullish that is.
• Last quarter they showed lending being increased and we finally saw it in the numbers. They set a new all time high in Q2 which was a 22% increase YoY. Q3 they have guided for 100% growth over 2023 levels. You know what that means? SOFI is expecting a whopper Q4 for lending.
• Cash is still higher than debt, love to see that. They did pay off $84m of the 2026 convertible notes in Q3, leaving $428m remaining. This did cause some dilution but nothing alarming.
• 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. Personal loans really ramping up into this favourable macro environment.
• New credit cards launched but not impacting the bottom line too much yet.
• The company is now profitable on a trailing basis! Their P/E Ratio just went from -57 to positive 58, and I expect them to keep growing into this. Bear in mind they are newly profitable, the PE will change rapidly and you need to be looking forward with your valuations on this one. I do expect EPS will grow much faster than their top line.
Here’s what I don’t like:
• Tech revenue was lower than expected again. Bears will love this, likely to see commentary along the lines of ”The multiple is too high for just a bank”. They are still hinting that the sales cycle is to blame here and they are still guiding for low to high teens growth versus 2023 levels. We did get some insight that the large financial institutions are struggling with the technology transition but this will only help keep investors calm in the short term, we need to see some results soon so all eyes on Q4 for this.
• Deposits a little light again. But increasing revenue despite this.
Stock based compensation is a little high but they do plan to come down to high single digits. I would expect it to trend down consistently after that in a slow trudge.
Analyst 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… SOFI expects to be in the green for year end and analyst’s don’t seem to agree.
SOFI Guidance
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 100% of 2023 levels
- Tech Platform net revenue percent growth of low to high teens versus 2023 levels
- Adjusted Net Revenue(8) of $2,535 – $2,550 million
- GAAP Net Income of $204 – $206 million
- Adjusted EBITDA(9) of $640 – $645 million
- GAAP Diluted EPS of $0.11 – $0.12
- $1 .00- $1.05 billion of Tangible Book Value(19) growth
- Total Capital Ratio at or above 16% at year end
- Member growth of at least 2.3 million, or 30% from 2023 levels
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. They must be feeling the burn now with price up 86% from the low in August. 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
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, as it is still lagging.
One thing that I was very excited to hear them talk about in the call was their new capital light approach to lending. We saw recently that they partner with Fortress and I made a post here about it. This fee based, capital light, low risk income really tickles my pickle. Its already had a big effect on Rev ($174 million) and there’s impressive demand for SOFI to outsource the loans that they don’t want to hold. At the current level that would be $700 million annualized. Love it.
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 $14, 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.
