That SoFi Technologies Improved So Quickly Is No Surprise: Here’s What I’d Do

Most investors and followers of financial media know of SoFi Technologies (SOFI) CEO Anthony Noto. Noto has been around the block a couple of times. Many have followed his career from Goldman Sachs (GS) to the NFL to Twitter and finally to SoFi Technologies.

Many are probably also aware that Noto is a graduate of the United States Military Academy at West Point (Class of 1991), the University of Pennsylvania’s Wharton Business School (MBA) and even more impressively (in my world) the US Army Ranger School at Fort Benning, Georgia.

As a long-time season ticket holder, I remember him as a linebacker. One of the best linebackers that the Black Knights of the Hudson have ever produced.

“Noto with the tackle” would rain down from the PA speakers all game long. Over and over. Every game. The man was aggressive. The man was all over the field. He still is.

SOFI Reports

SoFi Technologies released the firm’s fourth quarter financial results on Monday morning. For the three month period ended December 31st, SOFI posted GAAP EPS of a loss of $0.05, which was a beat of four cents per share on revenue of $456.679M. This number not only exceeded Wall Street’s expectations, but was good enough for year over year growth of 59.9%.

SOFI reported record fourth quarter adjusted EBITDA of $70M, which was up more than 15 times last year’s comparison and up 58% in sequential terms, while decisively topping estimates. The GAAP net loss of $40.006M was good for a narrowing of 64% versus the same period last year.

The firm added 480K new members during the quarter to more than 5.2M total memberships (+51% y/y). The firm also added 695K new products sold to that membership, which was up 53% to almost 7.9M.

Segment Performance

Lending – Generated revenue of $328.191M (+54%) on net interest income of $183.607M (+138%) and non-interest income of $144.584M (+6%). Directly attributable expenses increased 3% to $106.131M, as Contribution to profit increased 99% to $208.799M.

Technology Platform – Generated revenue of $85.652M (+61%). Directly attributable expenses increased 107% to $68.771M, as Contribution to profit decreased 16% to $16.881M.

Financial Services – Generated revenue of $64.817M (+195%). Directly attributable expenses increased 90% to $108.405M, as Contribution to profit/loss worsened to $-43.588M (-24%).

Guidance

For the current quarter, SOFI expects to see adjusted net revenue of $430M to $440M. This would be good for growth of 34% to 37%, and tops the $426M or so that Wall Street had in mind. The firm also sees adjusted EBITDA of $40M to $50M.

For the full year 2023, SOFI sees adjusted net revenue of $1.925B to $2B. This would amount to growth of 25% to 30%, and absolutely crushed Wall Street projections for $1.5B to $1.55B. The firm expects to post adjusted EBITDA of $260M to $280M for the year.

Management expects to reach quarterly GAAP net income profitability by Q4 2023, with net income incremental margins for the full year of 20%. Long time followers of this company may want to read that last sentence twice. It’s the most important thing we’ve heard from SOFI, maybe ever.

The CEO

Noto commented at length in the press release: “We generated our seventh consecutive quarter of record adjusted net revenue, which was up 58% year over year for the quarter and surpassed $1.5B for the full year, up 52% versus 2021. We also generated record adjusted EBITDA in the fourth quarter, finishing the year with over $143M in 2022, nearly five times the total adjusted EBITDA compared to full year 2021. This strength carried through to the bottom line, resulting in an incremental GAAP net income margin of 42% for the fourth quarter and 28% for the full year.”

Noto then added, “Record revenue across all three of our business segments — Lending, Technology Platform, and Financial Services — drove our record fourth quarter adjusted net revenue of 4443M and record fourth quarter adjusted EBITDA of $70M.”

The Balance Sheet

The firm’s net cash (cash, cash equivalents, restricted cash, and liquid securities available for sale) position ended the quarter at $2.243B, which was up 67.5% over the course of the year. Loans held for sale at fair value increased 128% over 12 months to $13.557B, as total assets more than doubled to $19.008B.

Total liabilities have increased 200% to $13.479B, largely due to the infusion of $7.342B worth of deposits, which did not exist as a line item last year. This is a positive. Debt has increased 39% to $5.486B, which is a bit high relative to cash for my liking, but as I mentioned cash is growing 67% versus 39% growth here. The quality of this balance sheet is clearly improving.

My Thoughts

It is both surprising and not surprising that SOFI has so quickly improved the firm’s execution. Not surprising because the place is run by Anthony Noto who is one of a handful of CEOs that I would bet on. In fact, SOFI is the most heavily weighted single stock in the Stocks Under $10 portfolio that I run for TheStreet. (We’re looking pretty smart right now.)

Yet, the improved performance does surprise as the firm’s financial performance is still being suppressed by President Biden’s continuing moratorium on student loan payments. That lack of revenue/income is being felt by the firm and its shareholders. Even without being able to properly account for if and when that revenue stream continues, the guidance is very encouraging.

Readers will see that SOFI broke out of its year long downtrend in November 2022 as the shares consolidated. Now, with suddenly red-hot Relative Strength and a handsome looking daily Moving Average Convergence Divergence (MACD), the shares have burst through and pulled away from their 200 day SMA (simple moving average). Let’s zoom in.

While it would not surprise me to see this stock retest that 200 day line from above before resuming its turnaround, my feeling is that my $7 price target at the Stocks Under $10 portfolio is probably short-term appropriate. That said, longer-term, I can also see a 38.2% Fibonacci retracement of the entire selloff (to the $12 level) as very possible.

I would buy it myself if it were not in the Stocks Under $10 portfolio.