Sofi: Up 25% Since Our Last Analysis, Here's What's Next

We have some good news and we have some bad news.

The good news is that Sofi almost hit our price target last week! The bad news is that we were projecting for this to happen in Q2 and it happened way before then.

While this is obviously a good problem to have, the market caught onto this investment way before we thought they would!

Sofi Earnings Interpreted:

The biggest thing that happened during their recent earnings call was that their lending business drove their revenue outperformance. Additionally net new accounts grew strongly and investing for the future was taken well by investors. Let's double click into each of those points:

• Lending drove outperformance: Before we dive into the numbers, remember what we said last time. And that is that the student rent moratorium is still in effect, which is the biggest tailwind for Sofi going forward. Therefore the street's expectations (the street = a fancy way for saying the consensus of wall street analysts who cover Sofi) for Sofi were rightly somewhat low. And with that Sofi delivered to the upside which speaks to the resiliency of their business regardless of the fact that they're missing a huge portion of their revenue stream! And with that context we saw that Sofi beat forecasts by over 13% in Q3 and lending specifically beat by 22%! 
• Net new accounts grew strongly: So when we look into the source of this revenue outperformance one of the largest driver's was that user growth grew 96% since last year and product growth grew 107% since last year. We hate to sound like broken records, but the fact that they're still growing this fast without their biggest tailwind is beyond impressive. The rest of wall street realized this fact too and that's why the stock has been surging ever since we recommended them. Expectations will be high in 2022 once the moratorium ends but this should all pale in comparison to what's capable next year! Expectations are high but we're expecting them to continue to outperform.
• Future Investments: One of the biggest things to note going forward is that EBITDA should be lower next year but this is because Sofi is set to reinvest 70% of their revenues back into the business. Without this context, upcoming numbers may scare many people, but this is all by design. Sofi has said that by 2023 this should start materializing on their bottom line and therefore we can overlook at shortcoming in this metric until then! With such a massive opportunity to take in consumer fintech, Sofi is SMARTLY riding this wave before it is too late. We're excited about their investments back into the company/M&A activity in order to fuel the next generation of the company. Their balance sheet should also allow this as they have plenty of cash on hand. Stay tuned for big news here!

Sofi Outlook: 

The TLDR on all of this is that we loved Sofi two months ago and we love them even more today. In the world of fintech there surely is a lot of noise to weed through. But once you've made your way through the jungle, Sofi is there, standing at the other end as one of the shining stars of the young and growing industry. 

We're truly excited to have been investors in Sofi since the SPAC. But the last thing we will note is that this stock, like so many other growth names, will experience volatility over time. So unless the news is poor, we're continuing to hold through any upcoming potential downside events.

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Current Price: $20

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Market Cap: $17B

Dividend Yield: 0%