New Loan Products And ESPN Partnerships Will Ignite Future Success

Key Takeaways

• SoFi's capital-light loan platform and innovative SoFi Money offerings drive revenue and higher margins through trust and fee-based services.
  
• Strategic expansions in SoFi Invest and marketing partnerships aim to boost engagement, brand awareness, and grow revenue through diverse financial services and cross-buy opportunities.
  
• Economic uncertainties could impact lending activity and increase default rates, while reliance on fee-based revenue and high APYs competes pressure on margins and profitability.

Catalysts

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

• SoFi's investment in its Loan Platform Business, which produces loans on behalf of third parties, enhances its capital-light revenue streams, contributing to revenue growth and higher net margins as the business scales.
  
• Continued growth and innovation in SoFi Money, expected to become a $1 billion revenue business, will drive increased revenue through high-margin fee-based services, facilitated by its bank charter and member trust.
  
• The expansion of SoFi Invest, including offering access to private investments and potentially re-entering the crypto space, is likely to increase engagement and further boost revenue and earnings in financial services.
  
• Strategic marketing partnerships, such as with ESPN for TGL and the Country Music Association's CMA Fest, aim to enhance brand awareness and drive membership growth, contributing to higher revenue through cross-buy opportunities and engagement.
  
• The forthcoming launch of new loan products, such as ones tailored to prime credit card customers, is likely to capture more of the lending market, potentially improving net margins and overall earnings by targeting high-interest debt sectors profitably.

SoFi Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SoFi Technologies's revenue will grow by 16.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.7% today to 20.6% in 3 years time.
• Analysts expect earnings to reach $912.2 million (and earnings per share of $0.72) by about May 2028, up from $462.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.5 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 23.3x on those 2028 earnings, down from 31.5x today. This future PE is greater than the current PE for the US Consumer Finance industry at 10.0x.
• Analysts expect the number of shares outstanding to grow by 4.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

SoFi Technologies Future Earnings Per Share Growth

Risks

• Economic volatility and uncertainties, such as potential market shocks or changes in macroeconomic conditions, could impact lending activity and increase default rates, affecting net margins and earnings.
  
• Despite strong results, reliance on fee-based revenue, which constituted 41% of total revenue, introduces potential variability in revenue streams, especially if loan originations fall outside the preferred credit box.
  
• Increased competition in maintaining high APYs on deposits could pressure margins, potentially impacting net interest income and overall profitability if deposit rates cannot be justified by higher lending returns.
  
• Growing the Loan Platform Business to include loans outside the current credit box presents execution risks and potential credit exposures that could impact both revenue generation and credit losses.
  
• Challenges in achieving anticipated product adoption rates, due to evolving consumer preferences or competitive pressures, could impact expected cross-selling benefits and thus influence revenue and margin projections.

Valuation

• The analysts have a consensus price target of $13.825 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 $20.0, 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 $4.4 billion, earnings will come to $912.2 million, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $13.27, the analyst price target of $13.82 is 4.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.