Shares of SoFi Technologies(NASDAQ: SOFI) rose nearly 8% in the final half-hour of trading. Shares fell yesterday after the company reported its third-quarter earnings report. SoFi reported $0.05 of diluted earnings per share on revenue of more than $697 million, beating analyst estimates for both metrics.
Are investors confused?
SoFi also raised guidance for the full year of 2024, projecting adjusted-net revenue in the range of $2.535 billion to $2.550 billion of revenue. Management also raised their guidance for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to a range of $640 million to $645 million.
Heading into earnings, the consensus-analyst estimates for adjusted revenue and adjusted EBITDA were $2.45 billion and $615 million, respectively, according to Visible Alpha, so it was a nice raise to EBITDA guidance.
Mizuho analyst Dan Dolev said in a research note yesterday that the "bears are confused" and "worries are unmerited," as reported by Barron's.
"There had been concerns historically that SOFI would not be able to grow due to capital concerns," Dolev wrote. "To address this, SOFI is expanding its lending capabilities via its loan platform business, which allows it to scale originations in a fee based, capital light low-risk manner with strong ROE [return on equity] & returns."
What to look for moving forward
SoFi had a nice quarter and certainly can benefit from a lower interest rate environment. Lower rates will allow the company to lower deposit costs. They will also likely bring more loan buyers to the company's platform and therefore boost loan-origination capacity.
But the stock currently trades at more than 91 times forward earnings and more than three times tangible book value. That's definitely rich for a personal lender, which is how SoFi makes the majority of its revenue.
SoFi does have a compelling tech business with Galileo and Technisys, but the business slowed down a bit in Q3. Future sales deals are expected to boost the tech business, but investors may want to see some of that materialize and for rates to drop further before investing too heavily in the stock, especially at this valuation.
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