On Tuesday, March 1, after close of trading, fintech upstart SoFi Technologies (SOFI) will report its financial results for Q4 2021. Yesterday, Jefferies analyst John Hecht paused to give investors a quick update before the main event.
"Credit migration, regulatory uncertainty and competitive dynamics have shaped the narrative" for the fintech industry, warns Hecht, even as investors worry about the pricey valuations and high revenue multiples prevalent in the fintech industry. Growth "stocks have been under immense pressure," says Hecht (in case you haven't noticed). The average enterprise value-to-revenue multiple of fintech stocks in particular has dropped nearly 50% from mid-'21.
SoFi stock hasn't been immune to this trend, either. Since June 1, 2021, SoFi stock has fallen about 44%. Regardless, Hecht has high hopes for SoFi stock heading into its Q4 report, now that the U.S. Office of the Comptroller of the Currency and the Federal Reserve have both approved the company's application to become a bank holding company last week.
"SoFi is unique as a neo-digital bank platform in" that it now possesses a federal bank charter, notes Hecht, calling this development both "a clear catalyst and" also proof of "the confidence of the OCC and Federal Reserve in SoFi's lending model." Still, the analyst muses aloud as to "how the company intends to grow and strategically operate the bank" -- and how much that will cost?
Hecht reminds investors that SoFi's acquisition of Golden Pacific Bancorp (which set SoFi up to inherit the bank's license) "is expected to close in February" and that, once this happens, SoFi "will inject $750M of capital into [Golden Pacific] to build out a national, digital bank with diversified consumer services."
Hecht predicts this merger "will improve the flexibility within SoFi's business model, particularly within its lending segment." At the same time, Hecht notes that SoFi was already "emphasizing investments in the business to sustain growth which will delay EBITDA margin expansion." Spending a further $750 million to revive Golden Pacific's business will presumably weigh on profit margins even more.
Still, all of this lies in the long-term future. In the more immediate future (i.e. next week), Hecht tells investors that they should expect SoFi to report roughly 61% revenue growth for Q4 -- $275 million in "adjusted net revenue." Loan originations, too, will probably grow briskly. Hecht predicts 66% year over year growth to $3.7 billion, led by growth in personal loans, which could more than triple year over year; and home loans, which are expected to rise 39% -- but offset by declining student loan originations, which are expected to fall 3.5%. And "membership" in SoFi will grow fastest of all -- up 75% year over year to 3.23 million customers.
As regards profits, unfortunately, Hecht doesn't hold out much hope -- for GAAP earnings at least. To the contrary, he predicts SoFi will suffer a $120.7 million net loss for Q4 2021, 41% worse than last year, even as "adjusted" earnings before interest, taxes, depreciation, and amortization turns positive at $2.5 million.
Even so, based on his estimation of the company's long-term prospects, Hecht assigns SoFi a "buy" rating along with a $20 price target. The figure implies shares will be valued ~60% higher in a year’s time. (To watch Hecht's track record, click here)
Overall, this fintech stock has attracted a total of 10 analyst reviews recently, including 7 Buys and 3 Holds for a Moderate Buy consensus rating from the Street. SoFi shares are priced at $12.58 and have an average price target of $20.80, giving the stock a 65% upside on the one-year time frame. (See SOFI stock forecast on TipRanks)
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