SoFi Q4 Earnings: I’ve Turned Bullish (Rating Upgrade) (NASDAQ:SOFI)

Investment Thesis

The highly contentious SoFi Technologies, Inc. (NASDAQ:SOFI) reported results that I have to admit blew me away. It’s difficult to remain bearish on SOFI on the back of these results. All the issues that bearish investors, myself included, may have had with SOFI stock have been proven unfounded.

SoFi lays out a road map that’s undoubtedly conservative, where it’s going to be delivering close to $1 of GAAP, yes, GAAP EPS, in the next 3 years.

With this sort of guidance, it’s difficult to see SoFI staying priced at less than $10 per share.

Rapid Recap,

Back in November, in a neutral analysis, I said,

I argue that although SoFi continues to deliver terrific improvements in profitability, even then, the stock is simply too richly valued for new investors to come in, with fresh capital and find this a rewarding investment.

Indeed, I believe there are better investment opportunities elsewhere.

Since I’d made my previous comments, the stock had lain dormant and had unperformed the S&P 500 (SP500). But now, management is determined to regain favor with investors and turn around its prospects. Here’s why this stock is suddenly attractive.

SoFi’s Near-Term Prospects

Anyone who follows my work will know that I frequently declare that I follow the customer adoption curve.

A company will always put forth its most alluring narrative. But following the customer adoption curve cuts through the noise. What you see above is that members are adopting SoFi’s platform and these figures are up 44% y/y in Q4 2023.

Irrespective of what Wall Street may think about SoFi, it’s clear that its customers love SoFi’s products. If a company is accumulating more than a million members every 90 days, there’s clearly very high demand for its platform.

Given this context, let’s discuss SoFi’s outlook.

Revenue Growth Rates Require Interpretation

SoFi puts out guidance that in the best-case scenario points to approximately 25% CAGR for 2024. For this estimate, I’ve taken the high end of each of its 3 segments’ guidance, and added 400 basis points on top, for the fact that management is probably lowballing estimates.

Even if, indeed, management ends up doing even better than its guidance by a substantial amount, I believe that it’s unlikely that in 2024 SoFi can be counted on to deliver 35% CAGR in 2024.

But is this such a problem? After all, SoFi guided that all the way up to 2026 that the business could grow by 25% CAGR. Indeed, rather than getting too caught up in what SoFi can grow in 2024, focus instead on what analysts were expecting SoFi to grow by.

As you can see above, analysts were expecting SoFi’s revenue growth rates to continue decelerating, so that by H2 2024 SoFi’s growth rates would have dipped to below 20% CAGR.

However, on the back of SoFi’s management’s guidance, we can see that analysts following the stock were too bearish on this name. Simply put, SoFi is still a growth stock, and investors will be very eager to chase this name higher.

SOFI Stock Valuation — 10x EPS, GAAP EPS?

Throughout 2023, SoFi has been determined to put to rest any assertions that its business commands too much stock-based compensation, or SBC, for its management team. Therefore, SoFi declares that by 2026, it could be on a path to deliver $0.80 of clean GAAP EPS.

Naturally, if SoFi is already angling for $0.80 of GAAP EPS at the start of 2024, management must believe that in time SoFi could get closer to $1 of GAAP EPS by 2026. Consequently, this puts SoFi priced at significantly less than 10x GAAP EPS.

For context, keep in mind that SoFi just ended Q4 2023 with $0.02 of non-GAAP EPS (also $0.02 GAAP EPS). For SoFi to go from an approximate run-rate of $0.08 of GAAP EPS to +$0.80 GAAP EPS in 3 years is a terrific improvement.

The Bottom Line

In conclusion, the recent impressive results from SoFi have compelled me to reevaluate my bearish stance. The conservative roadmap laid out by SoFi, projecting close to $1 of GAAP EPS in the next three years, challenges previous concerns and makes it difficult to envision the stock staying below $10 per share.

The company’s commitment to regaining investor favor and its strong customer adoption curve, with a 44% y/y increase in Q4 2023, indicate high demand for its platform.

The guidance of a potential 25% CAGR for 2024 confirms SoFi Technologies, Inc. as a growth stock. The prospect of achieving $0.80 of clean GAAP EPS by 2026 at a valuation significantly below 10x GAAP EPS adds further allure to the stock’s potential. This shift in perspective underscores the evolving attractiveness of SoFi as an investment opportunity.