After House Speaker Kevin McCarthy described the student loan payment pause as “gone” due to the debt ceiling deal, SoFi Technologies, Inc. (NASDAQ: SOFI) seems to be a huge beneficiary of the deal. Since one of SOFI’s core business models is student debt refinancing and it is back on the table, SOFI can now operate at full capacity again after the collapse of student loan originations a few years ago. Now that student loan payments are set to resume soon, SOFI stock could be one to watch closely as the company might reach profitability in Q3 ahead of its expectations of profitability in Q4.
SOFI Stock News
Since its inception, SOFI has operated as a non-bank lender offering student loans, personal loans, and mortgage loans. To fund these loans, SOFI would borrow money from other financial institutions at a high-interest rate. Looking to save these significant costs, SOFI gained its bank charter last February after acquiring Golden Pacific Bancorp, Inc. and its subsidiary Golden Pacific Bank which had $150 million in assets. Following this acquisition, SOFI renamed Golden Pacific Bank to SoFi Bank marking the company’s expansion in the banking sector.
Through this acquisition, SOFI was able to obtain a national bank charter and was approved by the OCC and the Federal Reserve. In this way, SOFI has been able to offer better features to its members including, checking and savings accounts, automated savings, and a user-friendly interface. In addition to allowing the company to attract more users, the bank charter allowed SOFI to fund the loans it offers to its members internally without incurring the costs of the high-interest rates. At the same time, the charter made it possible for SOFI to collect the interest on payments itself which has positively impacted the company’s revenues in the previous quarters. In light of this, SOFI stock price has the potential to appreciate significantly as the company continues growing financially in the future.
Meanwhile, the banking license has provided SOFI with a competitive advantage over other fintech companies since getting such a license could be difficult for these companies. In this way, SOFI has emerged as a fintech leader in the market – making it one of the most promising fintech stocks to invest in for the long term.
In other news, SOFI is well-positioned to capitalize on the current macro environment as the rapidly rising interest rates could allow the company to realize more revenues. Although these interest rate hikes could severely limit new loan originations, they continue to be resilient in the face of growing interest rates. As a result, SOFI could be poised to further grow its revenues in the coming quarters given its more favorable rates to its members.
Despite the growth in personal loans, the mortgage market has been severely impacted by inflationary cost pressures and growing interest rates. Since most people are deciding against buying new houses at the moment, SOFI is in a prime position to further grow financially in the current environment as the demand for its home renovation loans could increase significantly. Based on this, SOFI stock could be one of the best growth stocks to invest in at its current beaten-down PPS given its future growth potential.
Although SOFI has a vast suite of financial services, student loans remain the bulk of the company’s loans. With this in mind, President Biden has recently extended the moratorium on student loan payments and interest until Jan 1, 2023. This moratorium has been in place since March 2020 and was set to resume in September 2020. However, the freeze has been constantly getting extended since then. With President Biden announcing that the most recent pause would be the final extension of the moratorium, SOFI could be on track to have an even more successful year in 2023.
Moreover, President Biden’s federal student loan forgiveness plan has been temporarily blocked by the US Courts of Appeals recently after 6 states appealed the decision. In this way, students with federal debt could be looking to refinance their loans at competitive rates in light of the growing inflation which SOFI already offers. With the appeal process yet to play out, more and more students could refinance their loans with SOFI which could have a major impact on the company’s financials in the coming quarters.
While SOFI’s financial services segment is its most recognized business, the company’s operations also include a technology platform segment. These services are offered by SOFI’s subsidiary Galileo which provides businesses with the infrastructure to facilitate core client-facing and back-end capabilities. Since this segment has tremendous growth potential, SOFI acquired Technisys – a cloud-native, digital multi-product core banking platform to further advance this segment.
On that note, SOFI is looking to combine Technisys’s capabilities with Galileo’s technology stack to create the only vertically integrated banking technology stack. In this way, SOFI would be able to meet the growing needs of its partners and serve additional banks, fintechs, and non-financial brands looking to enter financial services. In light of this, SOFI appears to be delivering on its goal of providing best-of-breed products as a one-stop-shop financial services platform.
Additionally, this acquisition is set to have a major impact on SOFI’s revenues as the company expects Technisys to add $500 to $800 million through 2025. At the same time, SOFI expects the combination of Galileo and Technisys could allow it to save $75 to $80 million from 2023 to 2025 and $60 to $70 million annually thereafter. Meanwhile, SOFI believes that migrating off its current multiple third-party cores to the Technisys core could allow it to offer faster and more efficient services to its members. Given that the company is constantly pursuing growth opportunities, SOFI stock has the potential to reach greater highs in the long term.
*Updated May 3rd, 2023
Recently, SOFI reported mostly positive Q1 earnings results with the company reporting an EPS of -0.05 – beating the -0.08 estimate – and $460.1 million in revenues beating the $440.5 million analysts estimate and the bank’s Q1 guidance of $430 million to $440 million. Continuing its streak of positive news, SOFI reported strong adjusted EBITDA profits of $76 million beating its guidance of $40 million to $45 million by almost $30 million.
Finally, SOFI raised its guidance for the full year of 2023 giving a more promising image for the bank’s financial goals of the year. SOFI is expecting to deliver an adjusted net revenue of $1.955 billion to $2.02 billion, up from its prior guidance of $1.925 billion to $2 billion, and an adjusted EBITDA of $268 million to $288 million, up from its prior guidance of $260 million to $280 million.
However, following the event SOFI stock declined 16% despite its promising earnings report. The current bank stocks bearish sentiment could be a possible factor in SOFI stock price dropping, most importantly after the failure of First Republic Bank (NYSE: FRC) on May 1st which caused a decline in a significant number of bank stocks such as PacWest Bancorp (NASDAQ: PACW).
Nevertheless, SOFI’s massive decline could be an overreaction, as the stock could recover when the bearish sentiment surrounding bank stocks cools off. Moreover, SOFI stated that it raised its insured deposits limit from $250 thousand to $2 million causing 97% of its total deposits to be insured in comparison to 92% previously, while its total deposits increased from $7.3 billion to $10 billion. This could be a reassurance going forward as 44% of SOFI’s loans – which are its backbone – were funded by deposits that have increased during Q1 in comparison to other banks who suffered from deposit outflows during the March crisis. With the bank also expecting profitability by Q4 2023, SOFI stock might be an exceptional dip buying opportunity anticipating its recovery during the latter half of the year.
After receiving several extensions, the student loan forbearance could be drawing to a close soon. Unless president Biden orders another extension during the coming weeks, the student loan forbearance will be lifted on June 30th this year picking back up interests on student loans as late as 60 days after the aforementioned date. Student loans had always been the main business for SOFI, and with the forbearance on student loans potentially fading at the start of September, SOFI stock could be a one to watch during the upcoming months in anticipation of this catalyst.
*Updated May 30th, 2023
Ending months of stalemate, President Biden and House Speaker Kevin McCarthy have reached a tentative deal to suspend the federal government’s $31.4 trillion debt ceiling, ending the state of uncertainty that the U.S. has operated in for the last few months. The new deal means that the banking sector, which SOFI belongs to, can take a break as the U.S. reaches macroeconomic stability. Furthermore, the deal will also see the student loan payments pause gone within 60 days of the deal being signed.
Following the student loan payments resumption, one of SOFI’s main revenue sources from student debt refinancing is back on the table. In 2021, student loans accounted for almost 60% of loans held for sale for SOFI, but as of Q1 2023, student loans accounted for just 32%, while personal loans accounted for nearly 67% of loans held for sale and have seen a 46% increase in originations. Student loan growth stagnation can all be attributed to the pause in student loan payments in 2020.
With the resumption of student loan payments, SOFI can expect to run at full capacity again as the student loan refinance market normalizes. This also suggests that SOFI can expect to reach profitability in Q3 2023 sooner than the forecasted Q4 2023 as Q3 would witness elevated demand for student loan originations.
If the company becomes profitable in Q3, SOFI stock may see a huge jump in its stock price in a similar fashion to Palantir Technologies Inc. (NYSE: PLTR) when it achieved profitability for the first time in Q4 2022. Since then, PLTR stock has climbed by 96% and the same can happen to SOFI stock. If SOFI stock went on a similar run, it could break the $10 mark, which it has not reached for more than a year.
SOFI Stock Earnings
In its Q1 2023 report, SOFI reported $22.4 billion in assets including $2.4 billion in cash and equivalents, $15.8 billion in loans held for sale, and $360 million in loans held for investment. SOFI witnessed an increase in its assets from $19 billion including an increase in its cash and equivalents from $1.4 billion, an increase in its loans held for sale from $13.5 billion, and an increase in its loans held for investment from $307.9 million in Q4 2022. SOFI’s liabilities grew QOQ from $13.4 billion to $16.8 billion as its debts increased from $5.4 billion to $6.1 billion and its deposits increased from $7.3 billion to $10 billion.
SOFI’s total interest income grew QoQ from $118.4 million to $371.5 million and its net interest income from $94.9 million to $236 million. Moreover, the bank’s total non-interest income increased from $235.4 million to $236.1 million. Finally, SOFI’s net loss shrank from $110.3 million to $34.4 million. If SOFI’s net losses continue to decline at this rate, the fintech giant could be on track to reach profitability by Q4 2023 in line with its expectations.
Media Sentiment
@StockMarketNerd believes the new debt deal is good news for SOFI.
@JesseLeeDow1 sees the similarities between SOFI and PLTR.
Technical Analysis
SOFI stock’s trend is neutral with the stock trading in a sideways channel between $5.1 and $5.51. Looking at the indicators, the stock is trading above the 200, 50, and 21 MAs which are bullish indications. Meanwhile, the RSI is overbought at 75 and the MACD is bullish.
As for the fundamentals, SOFI stock just witnessed a catalyst in the new debt ceiling deal that would see student loan payments resume within 60 days of being signed into law. As SOFI could now reach profitability in Q3, the current PPS could prove to be a good entry in SOFI stock ahead of its Q3 earnings.
SOFI Stock Forecast
SOFI seems to be in a good spot as it has increased its personal loan originations as its student loan business was almost put on hold, and now with the student loan payments back on the table, SOFI can achieve profitability earlier than expected. In the event that SOFI achieves profitability in Q3, SOFI stock can make a similar run to PLTR and see it break the $10 mark.
If you have questions about SOFI stock and where it could be heading next feel free to reach out to us in our free alerts room!
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