Digital Transformation In Banking And AI Will Yield Mixed Results

Key Takeaways

• Investor expectations may be too optimistic about ongoing rapid growth in digital adoption, cross-sell potential, and new revenue streams.
  
• Rising competition, macroeconomic risks, and regulatory uncertainty could hinder projected margin expansion and profitability.
  
• Expansion of fee-based businesses, strong member growth, innovation in financial tools, and disciplined risk management position SoFi for durable revenue growth and improved profitability.

Catalysts

Provides various financial services in the United States, Latin America, Canada, and Hong Kong.

• The current share price appears to be factoring in sustained rapid growth in digital financial services demand, with investor expectations potentially overestimating SoFi's ability to capitalize on digital transformation and mobile-first trends at the same high pace as recent quarters. If digital adoption or new member growth normalizes, future revenue expansion could disappoint relative to aggressive expectations.
  
• Optimism about SoFi's cross-sell and ARPU potential-driven by younger generations' financial literacy and demand for all-in-one platforms-may be leading the market to overvalue the company. If the actual increase in products per user or average revenue per member lags forecasts, future revenue and profit growth could be materially weaker than anticipated.
  
• The long-term view assumes SoFi can continue expanding its product suite and monetizing proprietary banking and technology infrastructure (e.g., Galileo, bank charter) with high operating leverage and margin growth. However, intensifying competition, industry commoditization, or inability to achieve expected operating efficiencies could prevent margins from expanding as much as priced in, leading to weaker future net earnings.
  
• The current valuation may not fully reflect elevated risks from macroeconomic disruptions, such as persistently high interest rates or slowing consumer borrowing, which could cap loan growth, compress net interest margins, and ultimately reduce top-line revenue and profitability.
  
• Expectations for new high-growth catalysts like crypto/blockchain and AI are fueling bullish assumptions about additional revenue streams. However, regulatory hurdles, delayed rollouts, or less-than-anticipated adoption of these innovations could mean incremental contributions to revenue and earnings arrive slower or at a lower scale than the stock price implies.

SoFi Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SoFi Technologies's revenue will grow by 20.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 17.9% today to 16.3% in 3 years time.
• Analysts expect earnings to reach $850.1 million (and earnings per share of $0.69) by about July 2028, up from $542.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $626.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.4x on those 2028 earnings, down from 45.7x today. This future PE is greater than the current PE for the US Consumer Finance industry at 9.7x.
• Analysts expect the number of shares outstanding to grow by 4.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.63%, as per the Simply Wall St company report.

SoFi Technologies Future Earnings Per Share Growth

Risks

• Sustained strong member and product growth-evidenced by a 34% year-over-year increase in members and a record 1.3 million new products in Q2-signals expanding market adoption, which, combined with high cross-sell activity and improving unit economics, offers significant upside potential for long-term revenue and net earnings growth.
  
• Exceptional growth in capital-light, fee-based businesses (e.g., Loan Platform Business and Technology Platform), with fee-based revenues up 72% year-over-year and over $1.5 billion annualized, suggests a durable transition toward higher-margin, diversified revenue streams, supporting resilient earnings and margin expansion.
  
• Strategic investments and early-mover positioning in strong secular growth areas such as AI-powered financial tools and blockchain-enabled products (including international payments and crypto services), alongside a bank charter advantage, increase SoFi's ability to capture new market opportunities and drive long-term profit scalability.
  
• Robust funding and operational resilience-demonstrated by healthy deposit growth, strong capital ratios (14.4%), and disciplined risk management with improving credit metrics even in a challenging rate environment-provide a stable foundation for ongoing loan growth, lower funding costs, and consistent profitability.
  
• Management's raised guidance and confidence in delivering >25% compounded annual revenue growth through 2026, with accelerating EPS and EBITDA margins, reflect the company's ability to leverage secular and company-specific trends, positioning SoFi for significant share price appreciation if these trends persist.

Valuation

• The analysts have a consensus price target of $17.559 for SoFi Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $6.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.2 billion, earnings will come to $850.1 million, and it would be trading on a PE ratio of 32.4x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $22.4, the analyst price target of $17.56 is 27.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.