SoFi Earnings Update

SoFi released Q4 earnings yesterday, beating both earnings and user growth estimates. The stock was up as much as 20% after hours, but settled to ~6% this morning. Adjusted net revenue of $280mm was up 54% year-over-year and full-year adjusted EBITDA of $30mm, up from $4.5mm from the prior year.

As I mentioned in the last post, the most important growth number is the user-base. Analysts and amateur-bloggers were worried that the fintech market is saturated and user growth would stall. Acquiring new users is the single most important thing SoFi needs to do in order to turn profitable and grow.

SoFi added 523,000 new members in the 4th quarter, up from 377,000 new members from Q3 bringing the total member count to 3.5 million. SoFi’s members added 906,000 new products, which means users utilized one of SoFi’s financial offerings, such as loan refinancing, personal loans, investing, etc. You can read more about the details in their Q4 press release.

Superior Marketing

According to the press release, more than 22 million households per regular season football game held at SoFi were exposed to the brand and 110+ million tuned in for the Super Bowl. SoFi’s brand awareness increased 70% in 2021 – and this doesn’t even take into account the SUPER BOWL, where the LA Rams won on their home turf. In a tough market for fintech, the SoFi brand is rising to the top.

INGLEWOOD, CALIFORNIA – FEBRUARY 13: Owner of the Los Angeles Rams Stan Kroenke holds up the Vince Lombardi Trophy after Super Bowl LVI at SoFi Stadium on February 13, 2022 in Inglewood, California. The Los Angeles Rams defeated the Cincinnati Bengals 23-20. (Photo by Kevin C. Cox/Getty Images)

Vertical Acquisition Strategy

SoFi recently acquired Technisys for ~$1.1 billion in an all stock deal that diluted SoFi’s shareholders a little less than 10%. Technisys provides “Gen 3 multi-product banking core technology” according to the press release. The combined technology stack, including Galileo, allows SoFi’s be end-to-end vertically integrated banking technology stack allowing SoFi to be a one-stop-shop for multi-product banking core and ledger with fully integrated processing and card issuing available for all SoFi and Galileo/Technisys partners. SoFi estimates this acquisition will add $500 to $800 million through year-end 2025 in incremental revenue.

Larger acquisitions, especially vertical acquisitions where the acquiring company does not have intrinsic knowledge of the company they are acquiring are very tricky. SoFi does have a strong track record with the purchase and integration of Galileo, which increased its customer base from 89 to 100 in Q4, of successful vertical integrations. SoFi focuses on the customer and positions itself as a technology company not afraid to build core banking technology. If SoFi continues to excel in technology, marketing all while providing a great customer experience, they may actually differentiate themselves from all the competition.

SoFi: Sell or Hold

It’s not too late to buy. The stock is still down almost 50% from its high in January 2021 and has been in consistent decline since November 2021. The general fear is that user growth will stall therefore making all of SoFi’s long-term investments, such as the most recent Technisys acquisition, costly because the user base isn’t high enough to justify operating costs.

Now that SoFi is a bank and offers a wide variety of financial products that customers use, the company is in great position to make money in both rising rates and lowering rates environment. In rising rate environments, customers will lean towards personal loans and high interest checking accounts. In lower rate environments, customers will look at student and home loan refinancing and probably buy some crypto. They are on their way to looking like a large bank, and large banks make money in any economic environment…unless they cause the crash.

Also remember that SoFi got its start doing student loan refinancing and in theory the moratorium on federal student loan payments is ending in May this year. There may be a rush to refinance if…I don’t actually know, but seems like there will be some activity. Luckily student loans is no longer a priority for SoFi.

The stock is going to continue to be volatile, so I am going to re-evaluate if the stock hits $20-25 or drops to $6. Anything in the middle seems to be noise.