SoFi’s Brilliant Quarter: SOFI Stock Is a Smart Neo-Banking Bet

Updated on

Oct. 30 was a great day for SoFi Technologies (NASDAQ:SOFI), even if the market failed to recognize the significance of its achievements. Prospective investors should actually be glad that there’s a lag between what SoFi has accomplished and the potential share-price rally.

It’s stunning that SoFi Technologies stock only moved about 1% higher on Oct. 30. Yet, this may only be a delayed reaction from investors concerned about a possible interest rate hike on Wednesday.

Without trying to predict what the Federal Reserve will or won’t do, it’s fair to say that SoFi Technologies is growing and improving in important ways. Thus, while central bank policy is always relevant, there’s no need for prospective investors to hesitate, as SoFi’s future looks as bright as ever.

SoFi Technologies breaks its own records

Here’s the event the market is largely ignoring — even though it could prove to be a turning point for SoFi Technologies. The company just released its third-quarter financial results.

SoFi Technologies CEO Anthony Noto uses the word “record” so many times that it’s hard to count them all, but that’s actually a good thing. Here are some of the company records that SoFi broke in Q3:

  • Adjusted net revenue of $530.72 million, beating Wall Street’s estimate of $511 million
  • GAAP revenue of $537.21 million, up 27% year over year
  • Adjusted EBITDA of $98 million, up a whopping 121% year over year
  • 717,000 new member adds
  • Nearly 1.047 million new product adds
  • Sequential deposit growth of $2.9 billion

Those are a lot of company records for a single quarter. While SoFi Technologies outpaced Wall Street’s adjusted net revenue estimate, the company also reported an adjusted earnings loss of 3 cents per share. However, that bottom-line result beat the analysts’ consensus forecast of an earnings loss of 8 cents per share.

In other words, SoFi Technologies was nearly breakeven on a per-share basis in the third quarter. Looking ahead, SoFi’s management expressed “confidence in achieving GAAP profitability for the company for the fourth quarter of 2023.”

These facts all bolster the case that SoFi Technologies isn’t just a personal finance app but is evolving into a legitimate financial institution that could threaten much bigger banks. Perhaps BlackRock (NYSE:BLK) recognizes this, as the financial giant recently agreed to partner with SoFi Technologies.

Specifically, the two companies agreed to “place a $375 million personal loan securitization exclusively with funds and accounts managed by” BlackRock’s investment advisors. This represents not just a collaboration but a huge vote of confidence in SoFi Technologies. Thus, if investors wanted to see a sign that SoFi is legit and here for the long run, this is a huge green flag.

Another indicator of SoFi Technologies’ legitimacy is its third-quarter deposit growth. As you may recall, many banks experienced deposit outflows earlier this year. There were even modern versions of bank runs as customers of some banks lined up at ATMs to withdraw their funds.

Fast-forward to Q3 of 2023, and SoFi Technologies disclosed total deposit growth of $2.9 billion. Impressively, SoFi’s total deposits increased 23% quarter over quarter, reaching $15.7 billion.

SoFi Technologies thrives as student loan repayments resume

In addition, SoFi Technologies is already benefiting from the resumption of required federal student loan repayments. In particular, SoFi’s third-quarter student loan volume increased 133% sequentially and 101% year over year to over $919 million.

This occurred “as borrowers prepared to resume student loan payments in October,” according to SoFi Technologies’ quarterly press release. This result might be a surprise to people who didn’t expect SoFi to benefit from student loan repayments until October.

As customers look to the company to help them refinance their federal student loans, it is slowly but surely gaining trust and brand-name recognition. This is how a smaller bank can become a bigger bank, as SoFi is capturing a following of younger customers in the Millennial and Generation Z cohorts.

It will be a while before SoFi Technologies releases its fourth-quarter financial data. Yet, it’s easy to imagine that the resumption of student loan repayments will have a highly positive impact on SoFi’s top- and bottom-line results.

Thus, it’s baffling and frustrating that SoFi Technologies stock didn’t zoom higher on Oct. 30. Still, enterprising investors can take advantage of the market’s reluctance and indifference — and consider holding a few SoFi shares for the long haul.