Soft guidance overshadowed SoFi’s Q1 earnings beat in fintech. Skepticism regarding valuation adds complexity to the thesis.
- SoFi’s Q1 earnings beat didn’t prevent a 10% stock decline due to disappointing Q2 guidance below analyst expectations.
- CEO Noto cited investor concerns about SoFi’s transition year in 2024 despite strong revenue growth and strategic resource allocation.
- SoFi faces valuation challenges with high ratios, though it projects substantial growth potential, amidst skepticism and macroeconomic uncertainties impacting profitability.
- Catch the latest investment trends! Join our FREE Wall Street Trends Substack community for insights and stay tuned for the newest investment insights.
SoFi plummets after Q1 earnings
The Q1 earnings beat for fintech company SoFi Technologies (NASDAQ:SOFI) was not sufficient to sustain the positive performance of its stock following the release of the results.
The company reported an EPS of $0.02, surpassing the average analyst estimate of $0.01. This figure remained consistent with Q4 2023 and marked an improvement from -$0.05 in Q1 2023. In terms of revenues, SoFi reported $580.6M, exceeding the $559.5M consensus estimate. However, this represented a decline from $594.2M in the prior quarter, albeit an increase from $460.2M in the year-ago period.
On a more positive note, NII (net interest income) came in at $402.7 million, up from $389.6 million in the previous period and $236 million in the year-ago quarter. Additionally, SoFi added almost 622,000 new members in the quarter, bringing the total membership to 8.1 million, marking a significant year-on-year increase of 44%.
However, what particularly disappointed the market was the guidance for Q2. SoFi expects adjusted net revenue in the range of $555 million to $565 million, falling short of the consensus estimate of around $590.2 million. Similarly, the company anticipates adjusted EBITDA of $115 million to $125 million, below the consensus of $135.9 million.
CEO Anthony Noto has the answer
Following the earnings report, SoFi CEO Noto provided insight into the stock’s 10% decline after Q1 results, attributing it to several key factors.
According to him, despite achieving impressive results, including a substantial 26% year-over-year revenue growth totaling $581 million and significant increases in EBITDA margins and book value per share, investors appeared concerned about the company’s transition year in 2024.
Noto emphasized that as SoFi entered 2024, they faced uncertainties regarding interest rates, the economy, and industry liquidity. Despite having excess capital, they decided to allocate resources to high-return businesses that are now sufficiently developed to drive overall growth and profitability. This decision reflects a strategic transition towards focusing on these profitable ventures. The CEO emphasized that this transition is progressing well, setting a positive trajectory for the company’s performance in 2024.
“We raised ’24 revenue guidance by more than our beat. The comparison to Q2 we’ve not provided Q2 guidance before. The street had an estimate there that was above what we guided to, but for the full year, estimates will be going up relative to consensus by more than the beat in Q1.”
READ ALSO:
Is Trump Stock (DJT) Being Manipulated by Naked Shorting Practices?
AMC Stock: Wall Street Forecasts 76% Upside Potential Ahead
Tesla Stock: Why This Could Finally Be The Rebound
Valuation is still a concern
The valuation multiples surrounding SoFi are still far from being considered attractive, particularly when earnings are taken into account.
The company currently trades at a forward P/E ratio of 131x, compared to the banking sector’s average of 10x. Taking the fintech balance sheet into consideration, the price-to-book ratio of SoFi is 1.47x, which is approximately 30% higher than the industry average of 1.10x.
However, it’s important to highlight SoFi’s growth potential moving forward. Management recently raised its guidance for 2024 EBITDA to $590-$600 million from the previously projected range of $580 to $590 million for the year. Additionally, SoFi is now projecting full-year GAAP net income of $165 to $175 million, a significant increase from the earlier forecast of $95 to $105 million.
Looking ahead to the end of 2025, Street forecasts indicate that SoFi could achieve an annual EPS of 0.24 cents, representing a growth of 218% over the profits obtained in 2024. This supports the notion that the stock trades at a relatively stretched valuation.
Nevertheless, the company continues to face skepticism from market participants. Approximately 18% of its float is being shorted, indicating a significant amount of selling pressure driven primarily by macroeconomic headwinds and concerns over valuation.
Furthermore, any potential decrease in the federal funds rate by the Fed could exert strong pressure on the company’s margins and profits. Coupled with a deterioration in the financial health of consumers, this could lead to a rise in delinquency levels and pressure the expansion of SoFi’s loan portfolio, ultimately impacting the exponential growth factored into its valuation.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
Leave a Reply