SoFi Technologies Rockets Higher, What We’re Doing (NASDAQ:SOFI)

This market has been incredible in January. Just an amazing run, that is either the last big bear rally before we retest lows again, or, we are emerging into a bull market, despite the plethora of risks out there. As traders, we tend to do just fine in times of euphoria, like January has felt, or in times of despair, like December was feeling like.

SoFi Technologies, Inc. (NASDAQ:SOFI) is a fintech stock that we got really bullish on, again, calling for a must-buy trade that “we believed” in for our service. We have routinely covered the stock publicly because we believe it is a market disruptor. With the exception of the company being as profitable as a bank, by most other accounts, it is a big winner and the stock is rightfully off lows. Last week, we outlined our expectations for Q4, and the results are out. We discuss the key metrics you should be aware of.

SoFi’s Q4 headline results mixed

In the just-reported fourth quarter, SoFi’s topline growth accelerated once again, and the company saw record adjusted net revenue of $443 million, up 58% year-over-year from the same prior-year period. This also was well above the high end of management’s guidance, and it beat consensus estimates by $18 million. The strength also trickled to the adjusted EBITDA line, hitting $70 million, which once again blew out expectations, and this was the 10th consecutive quarter of EBITDA growth.

SoFi’s Q4 results relative to our expectations

Based on what we had seen with our banking coverage, which has been extensive, we saw continued loan growth demand as likely but thought also that the cost of deposits may be on the rise. We suspected strong growth overall, but SoFi was really impressed. We believed that, based on current 2022 trends along with management forecasts, if loan growth is slowed some, they would still grow, just at a lower rate. We were looking for a topline of $405 million, which we arrived at assuming new member adds of 220,000-260,000, and new products of 400,000-450,000, along with a slight reduction in the pace of loan growth. Well, we came in well above our expectations.

We suspected strong margins but also saw the company as likely to lose money on a per-share basis, but work toward approaching breakeven, which the company has forecasted the possibility of Q4 2023 GAAP profitability. That is mighty bullish. In this vein, the company did see some pressure on operating margins, and so we were too bullish, and on this front, there was some disappointment. Now, depending on topline drivers, and our expectations, we targeted a loss of $0.045 at midpoint. SoFi reported a loss of $0.05, so we nailed that, but it was better than consensus, which expected losses of $0.09.

The company continues to take market share, disrupt the space, and loans grew nicely, and that is the primary driver of the stock rebounding. In short, there is strong hope for the future.

SoFi’s Q4 loans driven by personal loan growth

Despite the fears of a recession, in SoFi Technologies, Inc.’s Q4, there was strength across all three reporting segments. Ongoing strong personal loan originations continued in Q4 and drove total lending products to increase by 24%. Personal loan originations were $2.5 billion in Q4, which was up nearly $820 million, or 50%, year-over-year. Full year personal loan originations of $9.8 billion were up 81% from 2021. Strong. However, student loan and home loan originations were down 72% and 84%, respectively, and that is eye-popping. This follows trends with other banks as housing demand is down, while the student loan moratorium simply weighs.

SoFi’s tech platform remains strong

SoFi’s technological capabilities to attract customers and cross-sell to existing customers are strong. The synergy of Technisys and Galileo has supported multiple product growth and growth in revenues. The technology platform enabled accounts jumped by 31% year-over-year to 130.7 million. We will point out that this was a slight pace of decline from Q3’s 40% increase. In this segment, Q4 revenue was $85.7 million in the quarter, which was up 61% from last year, and was up marginally from Q3. The strong pace of growth is now normalizing, so this is something to keep in mind. It is tough to continue those high double-digit percentage gains.

Financial services growth strong but a money loser for now

The financial services segment in Q4 saw $49.0 million of revenue. The revenues are still growing for the financial services, with 195% growth from last year. We had expected this growth to continue given the new product and new member growth, but see sequential growth as slowing some. But sequentially, we still had 33% growth from Q3.

Both SoFi Invest and SoFi Money products have been winners and continue to drive growth. Total financial services products grew by approximately 0.64 million, or 15%, year-over-year up to 6.6 million. SoFi Money saw another 193,000 products added, and SoFi Invest products increased by over 91,000. Finally, SoFi Relay products were 322,000 higher. The company is taking more and more of the market share pie.

While the member growth is strong, the company is paying up to attract members, offering a very attractive 3.75% APY on deposits, as well as a unique (but not cheap) rewards program. With all of the expenses here, the segment saw a loss of $43.6 million stemming from credit card losses as well as continuing to build up its current expected credit loss reserves. This follows other banks in terms of preparing for a mild recession.

Strong outlook

So what is driving the bullish reaction? It was a pretty strong guidance:

For the full year 2023, management expects adjusted net revenue of $1.925 to $2.0 billion, up 25% to 30%, and full-year adjusted EBITDA of $260 to $280 million. Management expects to reach quarterly GAAP Net Income profitability by Q4 2023

This is pretty stellar. You are talking about 30% increase in revenues. You are also looking at EBITDA almost doubling. And, to point to actually becoming GAAP profitable? Well, that is incredibly bullish for SoFi Technologies, Inc.

Our take

We made another nice trade, and given the possibility of another selloff in markets, we think you should take some of the SoFi Technologies, Inc. trading gains off the table, while also selling some upside calls, but we like remaining net long here.