As a SoFi shareholder, I am sorry the company’s stock price trades 56% below its June 2021 peak of $22.65 — the day the company merged with a special purpose acquisition company.
Despite considerable bets against SoFi— 17.9% of whose shares are sold short, according to the Wall Street Journal — the company’s stock could rise further. Here are three reasons:
- Expectations-beating second quarter earnings report.
- Fresh investment from Fortress Investment Group.
- Lower interest rates could boost loan demand and reduce delinquencies.
Analysts are generally optimistic about SoFi and high short-interest in the company could propel the stock further. The reason? If the company continues to exceed investor expectations, short sellers may scramble to buy the stock should brokers issue a margin call.
Expectations-Beating Q2 2024 Performance And Prospects
SoFi’s unique strategy propelled the company’s expectations-beating results for the quarter ending July 30.
Unlike banks, SoFi aims to provide a range of financial services to a specific demographic group. More specifically, SoFi provides a range of offerings — including lending, banking, insurance, and investment solutions, accessible through a single online platform — to young, high-income people, according to TipRanks — dubbed High Earners, Not Rich Yet.
While SoFi originally supplied HENRYs with student loans and mortgages, the company has since diversified — boosting its resiliency. For example, SoFi’s financial services and technology platform revenue grew 46% in the second quarter — making up 45% of total adjusted net revenue — seven percentage points more than the year before, noted TipRanks.
Here are the key numbers:
- Q2 2024 revenue: $599 million — up 20% from the year before and $25 million above the FactSet consensus.
- Q2 2024 net income: $17.4 million compared to a $47.5 million loss the year before, according to MarketWatch.
- Q2 2024 earnings per share: one cent — compared to a loss of six cents the year before and better than the breakeven result forecast by FactSet.
- Q2 2024 adjusted earnings before interest, taxes, depreciation and amortization: $137.9 million — $16.9 million more than the FactSet consensus.
- Q3 2024 adjusted net revenue forecast: a range between $625 million and $645 million — the midpoint of which is $24 million higher than analysts’ forecast, noted MarketWatch.
- Q3 2024 adjusted EBITDA forecast: a range between $160 million to $165 million — the midpoint of which is about $1.5 million more than the FactSet consensus.
$2 Billion Investment From Fortress Investment Group
A large investor demonstrated confidence in SoFi’s prospects. On October 14, Fortress Investment Group and SoFi announced a pact to provide $2 billion for personal loans, according to Barron’s.
“The agreement will expand SoFi’s capabilities in its loan-platform business, where the company refers pre-qualified borrowers to loan-origination partners as well as originates loans on behalf of third parties,” SoFi said in a press release.
“SoFi’s loan-platform business is an important part of our strategy to serve the financial needs of more members and diversify toward less capital-intensive and more fee-based sources of revenue,” CEO Anthony Noto said in the release.
Lower Interest Rates Could Boost Loan Demand
With the Federal Reserve cutting interest rates by half a percentage point, SoFi management is likely to become less concerned about the risk of high rates causing economic activity to slow, people to lose their jobs, and loan losses to rise.
While SoFi initially expected revenue to decline 5% in 2024, the Fed interest rate cut in September suggests management may become less pessimistic and enjoy the benefits of improved economic activity — such as lower prospective loan losses and possibly increase demand for loans as rates decline, noted TipRanks.
Analysts Are Optimistic About SoFi Stock
Despite surpassing analysts price target of $8.27, according to TipRanks, analysts are bullish on SoFi stock. Here are three reasons:
- SoFi home loan originations are rising as delinquencies fall. SoFi shows “promising signs of life in home loan originations, which were the highest since 2021,” Mizuho analyst Dan Dolev said, according to MarketWatch. Personal-loan delinquencies declined for the first time since the first quarter of 2022, Dolev added.
- SoFi’s business model could make banking better. SoFi could outperform the market for years as traditional banks become less relevant. “SoFi is transforming banking as the beneficiary of what we consider a generational business model shift,” noted Andrew Jeffrey of Truist Securities, according to my December 2023 Forbes post.
- Noto tells a compelling story. CNBC’s Jim Cramer likes SoFi stock and disagrees with the short sellers. “There are people who genuinely hate this company and it has a very big short position,” Cramer said according to Insider Monkey. “But how many times have I asked Anthony Noto to come on and defend it? And every time he does and every time he tells a cogent story. So I am not backing away from Noto. I like the stock.”
With a consequential election weeks away, plenty could go wrong. Yet Fortress’ $2 billion bet on SoFi’s business is a bullish signal.
Disclosure: I own shares in SoFi Technologies – starting as an angel investor in 2014.