Rising Blockchain Regulation And Fintech Competition Will Erode Profitability

Key Takeaways

• Mounting regulatory, interest rate, and policy shifts threaten core lending and emerging segments, pressuring margins and complicating expansion of SoFi's digital-focused business model.
  
• Fierce competition, customer acquisition costs, and high equity compensation risk eroding profitability through shareholder dilution, ongoing expense pressure, and muted earnings per share growth.
  
• Strategic diversification beyond lending, successful technology scaling, and innovation in digital finance position SoFi for persistent growth, higher margins, and long-term profitability.

Catalysts

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

• The rapidly evolving regulatory landscape, particularly increased regulatory scrutiny around blockchain, crypto, and consumer data privacy, could result in sharply rising compliance costs and limit the profitability of SoFi's expansions in these areas, directly pressuring net margins and overall earnings as the company's digital-centric model grows in complexity.
  
• Persistent high interest rates or a delayed return to lower borrowing costs risk undermining SoFi's core lending business. This environment may lead to weaker loan demand in key categories such as personal loans and mortgage refinancing, stalling origination growth and directly impacting top-line revenue and net interest margins well beyond the current year.
  
• Intensifying competition from both established banks aggressively expanding their digital offerings and a constant influx of new fintech entrants threatens to commoditize SoFi's core products. This increased rivalry could drive down fees, erode pricing power, and force higher marketing and technology spend to retain customers, squeezing gross profit and depressing future earnings.
  
• The potential for declining student loan volumes, amid ongoing changes to student debt policies and expanded forgiveness programs, poses a structural headwind to SoFi's previously robust student lending segment. This could materially reduce a historically significant revenue stream and limit the effectiveness of cross-selling strategies, masking the true risk to long-term revenue growth.
  
• SoFi's heavy reliance on equity-based compensation in order to compete for fintech talent, coupled with the ongoing need to invest aggressively in marketing, product innovation, AI, and crypto, could result in ongoing shareholder dilution and delayed improvements in earnings per share. The anticipated drag on EPS growth may not be offset by current topline expansion if operating leverage fails to materialize as projected.

SoFi Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on SoFi Technologies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming SoFi Technologies's revenue will grow by 17.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 17.9% today to 15.3% in 3 years time.
• The bearish analysts expect earnings to reach $748.0 million (and earnings per share of $0.51) by about August 2028, up from $542.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.3x on those 2028 earnings, down from 48.8x today. This future PE is greater than the current PE for the US Consumer Finance industry at 9.4x.
• 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 8.05%, as per the Simply Wall St company report.

SoFi Technologies Future Earnings Per Share Growth

Risks

• The accelerating adoption of SoFi's one-stop digital platform, evident in record member and product growth with 34% and 34% year-over-year increases respectively, signals long-term expansion in addressable market and supports durable revenue growth.
  
• SoFi's deliberate shift toward capital-light, fee-based revenue streams through product diversification-such as its Loan Platform Business and technology partnerships-reduces dependence on lending and can increase non-cyclical, higher-margin revenues over time, benefiting both top-line growth and net margins.
  
• The successful scaling of SoFi's technology infrastructure (Galileo and Technisys) and signing of diverse B2B clients-including major hotels and international banks-creates recurring, high-margin platform revenue, which diversifies earnings and provides long-term margin stability.
  
• Ongoing investment and innovation in blockchain, crypto, and AI position SoFi to capitalize on technology super cycles and evolving consumer demand, potentially unlocking new revenue streams and improving efficiency, which can enhance both future revenue growth and net income.
  
• The company's bank charter provides access to low-cost deposits, supports favorable net interest margins (maintaining levels above 5%), and offers a strategic advantage in regulatory clarity, enabling sustainable profitability and strong capital ratios that may translate into higher future earnings.

Valuation

• The assumed bearish price target for SoFi Technologies is $8.84, which represents two standard deviations below the consensus price target of $20.11. This valuation is based on what can be assumed as the expectations of SoFi Technologies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 bearish analysts, you'd need to believe that by 2028, revenues will be $4.9 billion, earnings will come to $748.0 million, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $22.1, the bearish analyst price target of $8.84 is 149.9% 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.