Shares of the member-oriented consumer bank SoFi technologies (NASDAQ: SOFI) have increased enormously. The stock shot up 148% during the five months between June 30 and December 1, 2024.
SoFi shares defied gravity for months, but recently started falling. Investment bank analysts are not convinced the underlying business has grown fast enough to support the high new valuation.
Is SoFi Technologies still a good stock to buy or has it gone too far? To find out, let’s look at why the stock shot higher this year and why Wall Street isn’t so bullish anymore.
SoFi Technologies stock is rapidly growing its membership base by making loads of unsecured personal loans. Investors who had held back for fear the company would make 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 |
|---|---|---|---|---|---|
|
Delinquencies on personal loans exceeding 90 days |
0.48% |
0.56% |
0.72% |
0.64% |
0.57% |
Data from SoFi Technologies. Table by author.
The US economy is in a good place for SoFi and its personal lending business. The Federal Reserve has already cut interest rates by 0.75% in 2024 and a further cut of 0.25% is widely expected on December 18, 2024.
Lower interest rates may shrink profit margins, but the volume gains in the credit segment more than make up for the difference. SoFi’s lending segment reported record third-quarter revenue and record profits that rose 17% year over year to $238.9 million.
Lending isn’t the only SoFi operation growing rapidly. Borrowers often sign up for checking, savings and retirement accounts. As of early 2023, the company’s financial services segment was still losing money. Since then, it has posted fast-growing contribution profits 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 blockthat use Galileo to automate financial tasks. Contribution profits from the technology platform segment rose to a record $33 million in the third quarter.
SoFi Technologies is growing rapidly and keeping costs under control. Management expects net income on a GAAP basis to reach $205 million at the midpoint of the stated range. This represents a slight decline, but is still much better than the heavy losses the company reported just a year ago.
