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SoFi shares soared 20% on Monday.
Justin Sullivan/Getty Images
SoFi Technologies
stock kicked off the week strong, soaring 20% Monday after delivering strong deposit numbers and a narrower-than-expected loss for its second quarter, plus a boost to its financial guidance.
But Wall Street is always looking forward.
SoFi
(ticker: SOFI) says it expects to be profitable in terms of GAAP net income in the 2023 fourth quarter. Analysts and investors are focused on that path to profitability and what the fintech’s growth will look like going forward.
Shares have more than doubled this year, but were falling 7.7% to $10.57 on Tuesday as traders parsed through a downgrade that cited growth concerns and valuation.
Analysts at Keefe Bruyette downgraded shares to Underperform from Market Perform, but raised their price target to $7.50 from $5.50 in a Monday report.
After the stock’s strong run this year, its “valuation has overshot the fundamental earnings outlook,” they wrote.
The Keefe analysts acknowledged it’s difficult to downgrade the shares when they are on such a roll, but they predict that SoFi’s growth rates will moderate. “Profitability will be modest at best in 2024,” they added.
Wedbush analysts struck a similar tone in a Monday report. They expect the company’s high revenue growth could slow next year, “barring a capital raise to support high growth.”
Wedbush says the fintech’s credit quality has been outpacing that of competitors, but that could weaken if a mild recession arrives next year. Wedbush rates shares at Underperform with a price target of $3.
The last several years have been a journey for SoFi to create a one-stop shop for financial services needs, Chief Executive Officer Anthony Noto told Barron’s on Monday. The company has three segments: financial services, lending, and technology platform.
For now, all eyes are on the financial services segment—the only business unit to deliver a loss in the latest period. That segment posted a contribution loss of $4.3 million for the second quarter, a significant improvement upon the $53.7 million loss recorded in the year-ago period.
Noto said that profitability will come for that segment, but it’s a longer path to get there.
“Building out all these non-lending products, you have to go out and acquire customers, the payback period is 12 to 24 months—that business now is almost profitable,” he told Barron’s.
As for SoFi’s other business segments, lending notched a contribution profit of $183.3 million in the second quarter, while the tech platform brought in $17.2 million.
A majority of analysts are sticking to the sidelines for SoFi, with 45% rating shares at Neutral, 35% at Buy, and 20% at Sell, according to FactSet.
Write to Emily Dattilo at [email protected]
Source: https://www.barrons.com/articles/sofi-earnings-stock-price-downgrade-13b75ddf?siteid=yhoof2&yptr=yahoo