I bought SoFi (NASDAQ: SOFI) to make money, right? Therefore, its fall following a sharp drop in market appetite for “riskier” assets in peripheral sectors like fintech has not been great. It is all the more that the The company continued to meet financial guidance with underlying demand for its financial solutions continuing to be strong. SoFi offers a range of financial products to its more than four million customers, including checking accounts, personal loans, insurance and auto loan refinances. The company has expanded aggressively into new verticals after student loan refinancing, previously its magnum opus and founding reason have been disrupted by what now appears to be a nearly 3-year extension of the moratorium on repayment of student loans.
This market is effectively crippled and is used for political football. Therefore, I was surprised when SoFi announced its results for fiscal year 2022 and its share price reacted by climbing 28% for one of the highest intraday moves in the history of the company. Just a few weeks ago, the same market drove stocks to new all-time lows. It was odd because SoFi had successfully applied for a national bank charter, introduced new products to diversify its revenue streams, and doubled its underwriting of high-quality credit.
However, as Japanese multinational conglomerate SoftBank (OTCPK:SFTBY) decided to sell all or part of its 9% stake in SoFi, shares fell slightly from their new 3-month high. Investors would be better placed to focus not on short-term stock price swings, but on the longer-term implications of SoFi’s healthy revenue growth and improved profitability. SoftBank’s decision to sell its stake is part of a wider move by the company to shore up its balance sheet after posting a loss of about 2.93 trillion Japanese yen ($21.68 billion) on its Vision Fund investment unit.
Fiscal 2022 guidance increased as net financial results beat estimates
The SoFi bulls were right in that the banking charter led to a multifaceted improvement in fundamentals. The company recently released results for its second quarter of fiscal 2022, with revenue of $356.09 million, a 50% increase over the prior year quarter and an 11 $.62 million over consensus estimates. This is because the number of members grew to 4.3 million, with SoFi adding 450,000 new members during the quarter. This was year-over-year growth of approximately 69%, with new products added, the total number of loan products and financial services selected by members, increasing by 79% to reach 6.56 million.
Adjusted EBITDA for the period was positive at $20 million, compared to $11 million in the prior year quarter and 122% sequentially. As this was against the $5-15 million forecast, this represented a $5 million beat at the high end. This means that SoFi has increased its fiscal 2022 revenue forecast to between $1.508 billion and $1.513 billion, or $3 million higher than the previous forecast. Adjusted EBITDA was also adjusted upward to between $104 million and $109 million, $4 million higher than previously forecast.
Importantly, the new guidelines assume the student loan repayment moratorium remains in place for the remainder of the year. It could very well be extended until March 2023, but a further upward revision of the guidance could take place if the moratorium ends earlier. The current forecast assumes that it is extended until the end of December 2022.
The closing of the student loan repayment moratorium chapter continues to be a powerful catalyst for SoFi. It would reinvigorate the momentum of a division that was SoFi’s largest with approximately $2 billion in creations in Q1 2020. New users would also be drawn to the platform, accelerating SoFi’s flywheel and increasing underlying profitability. The banking sector, which saw deposit growth of $1.56 billion, or about $120 million a week, would also be boosted. Crucially, the SoFi National Banking Charter coup and the upcoming end of the moratorium set the context for Adjusted EBITDA to continue to rise as the cost of funding the business declines. Indeed, the company replaced $1.2 billion of higher cost warehouse debt during the quarter.
SoFi likely has a bright alpha-generating future
The SPAC boom that took SoFi public is all but dead, growth stocks have crashed, and the economic outlook is depressed. It would be easy for one person to sell their stock and move on, but I’m optimistic the company has the mechanisms in place for continued revenue growth and future profitability.
The student loan moratorium saga will eventually have to be settled and will represent a huge revenue boom when it does. I continue to be long on SoFi shares and will continue to accumulate shares below $10.