Fintech provider SoFi Technologies Inc. (NASDAQ: SOFI) knocked the ball out of the stadium with its Q3 2023 earnings report. SoFi is an online personal finance company servicing college students, millennials and Gen-X-ers completely online through its digital platform. The company creates generational customers by providing student loan financing and expanding its suite of financial services as customers progress throughout their careers.
Digital banking, insurance and investing services
The company is a licensed FDIC insurance digital bank providing deposit and checking accounts, business services, credit cards, personal loans and mortgages. SoFi offers insurance services, including life, home and auto, through its partnerships with various providers, including Lemonade, Inc. (NASDAQ: LMND).
It also offers investing and wealth management services, which include commission-free stock, ETF, IPOs and cryptocurrency trading. They offer IRAs and retirement planning, robo advisors and even human-certified financial planners (CFPs). It’s a one-stop shop for personal finances, all conveniently accessible through its mobile app.
From a $2.50 target to Q4 GAAP profitability
It’s hard to imagine that the company received double downgrades in May by Wedbush dropping its rating to Underperform and lowering its price target to $2.50. Meanwhile, the company has been on a solid trajectory towards reaching GAAP profitability by Q4 2023, and its latest earnings leave little doubt it will.
The company is ushering in a new generation of customers acclimated to banking in the digital world without branches and office locations. The average annual income of SoFi customers is $112,000, with a median FICO credit score of 743 for its direct deposit portfolio.
Batter Up
On Oct. 30, 2023, SoFi reported its Q3 2023 adjusted earnings-per-share (EPS) loss of 3 cents, beating consensus analyst estimates for a loss of 8 cents by 3 cents. Adjusted EBITDA rose 121% YoY to
Net revenues rose 27% YoY to
Raising the Bar Again
SoFi raised its revenue guidance for full-year 2023 to
CEO Insights
SoFi CEO Anthony Noto presented some impressive metrics for the quarter. Over 77% of adjusted net revenue in the Lending segment was net interest income. It grew 90% YoY to $265 million. Net interest income is 2X greater than its expenses. Segment contribution margin rose 300 bps sequentially to 60%. Student loan originations saw their highest originations since Q1 2022 ahead of repayments. Home loan originations rose 64% YoY despite high interest rates for purchase and refi.
Over 65% of their loans were funded by deposits. Lending capacity is robust, with over
Cross-Buying Product Synergies Accelerating
A key part of the SoFi strategy is to promote synergistic cross-buying of products on its platform. This was demonstrated beautifully in the quarter from customers in its SoFi Money banking and investing services to its lending and financial services. Over 50% of newly funded SoFi Money accounts set up direct deposit by day 30. This resulted in debit spending exceeding
$2 Million FDIC insurance
The company has nearly 98% of its deposits insured at the end of the quarter. The company launched its expanded FDIC insurance of
The “high quality” of deposits has helped lower funding costs for its loans, increasing its flexibility to capture additional net interest margin to optimize returns. SoFi Bank. N.A. generated
Analyst Actions
On Oct. 31, 2023, Morgan Stanley made a bold call to upgrade SoFi to Equalweight from Underweight. Analyst Adelson was more positive upon seeing net interest income rise faster than expected on loan growth, higher student loan originations, and the ability to originate at higher loan yields thanks to strong deposit flows. The potential for higher Q4 loan sales lowers the risk of a potential capital raise in the near term.
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Daily Descending Triangle Breakout
The daily candlestick chart on SOFI was in a descending triangle pattern comprised of a descending trendline that commenced on Oct. 11, 2023, after peaking at
The daily market structure low (MSL) trigger formed at