(Nasdaq:SOFI) On January 30th, 2023, SOFI announced their 4Q22 earnings, marking another successful year with remarkable growth.

Quick Outline

1. SoFi Financial Highlights
2. What is SoFi
3. SoFi Business Growth Drivers to look out for
4. Three Additional Insight that investors should not missed
5. Conclusion

SoFi Financial Highlights (Source:SOFI)

What is SoFi?

SoFi stands for Social Finance, Inc a financial technology company offering personal loans, mortgages, investment products and insurance. Their Mission is to help people reach financial independence to realize their ambitions. And everything they do is geared toward helping their members get their money right. SoFi has grown significantly since its founding in 2011.

SoFi Business Growth Drivers to look out for:

1. Growth in Loan Volume and its Net Revenue:

SoFi originally began as a provider of student loan refinancing and continues to operate in this segment today. However, the student loan origination business faced challenges in 2022 due to the student loan moratorium implemented by the Biden administration, which is still in effect and may be extended again.

In response, SoFi has shifted its focus towards growing its personal loan segment, which has seen a 81% increase. This has partially offset the slowdown in both student and home loans and contributed to higher revenue growth due to higher interest rates.

2. Increase in membership:

SoFi has gained a substantial following, with millions of members and a continuously expanding membership base. In the last quarter alone, it attracted nearly 480,000 new members, despite a slowing growth rate. Nevertheless, it still saw a 51% year-over-year increase. The growth of its membership is crucial for not just the growth of its loan segment, but also for the other financial services it offers, as stated in the following point.

3. Expansion of product offerings

SoFi initially offered student loan refinancing but has since expanded to include personal loans, mortgages, investment products and insurances. With their FICO scoring, they able to access their client status more accurately and able to offer appropriate product with better risk measures. This allow them to extend their product offering to market that are untapped by the traditional banks. The users could also enjoy a one-stop shop solutions for all their financial needs.

Therefore, over time, a key metric for investors is the ratio of financial services to lending products. In Q4’20, for every user with one lending product, they signed up for an additional 1.7 products. By Q4’22, this number had increased to 4.9 times. This strategy not only helps SOFI grow, but also diversifies their reliance on a single product.

4. Strategic Partnership and acquisitions

SoFi has established partnerships with other financial entities and made acquisitions of other companies to expand its product offerings and reach. In 2020, SoFi acquired the Galileo financial technology platform for 1.2 billion and has experienced steady growth in its membership, with a 31% year-over-year increase. Although this growth is substantial, it has recently started to slow down.

Three Additional Insights that investors should not missed

1.  Potential Business Offering

During recent earnings calls, questions were raised regarding the company’s product growth. Their deposits have increased seven-fold this year to reach 7 billion, providing ample room for growth in their loan business. This could also potentially lead to exploring small and medium-sized business loans in the future. However, they stated that their current focus is not on this, but the possibility will be re-evaluated on a quarterly basis. The growth of their deposits will be a crucial factor in determining whether or not to offer SME loans, as there have been inquiries from users, particularly in light of the pandemic. (Source: Earning Conference Calls)

2. Valuations with PEER

As of the time of writing, SoFi has one of the lowest Price to Book Valuations at 0.9. While its Price to Sales is on the higher end, its growth rate is also higher, making its valuations relatively cheaper compared to its peers.

Company	P/B (x)	P/S (x)	3Yr Rev Growth
SoFi	0.9	3.6	52.6%
Paypal	4.7	3.5	16.7%
Upstart	2.6	1.9	106.9%
WellsFargo	1.0	2.3	-4.6%
JPM	1.3	3.0	3.6%

Source: GoodWhale

3. SoFi CEO invested additional 5 Million in the price range of 4.29 to 4.58

SoFi CEO Anthony Noto has purchased SoFi shares back in June 2022 when around 180,000 shares were purchase at prices ranging from 5.36 to 7.07. In December 2022, he further purchased more than $5 Million worth of stock with average price of $4.42. (Source:Nasdaq)

Conclusion

SoFi has seen significant growth, expanding both its offerings and its member base. The company is seeking further growth, projecting annual revenue growth of 25-30%, and expected to achieve GAAP net income profitability by Q4’23. Although its Price to Sales valuation is higher compared to traditional banks, its expected growth outpaces many of them. Additionally, SoFi CEO Anthony Noto has invested his own money to demonstrate confidence in the business.