SoFi Technologies (NASDAQ: SOFI) recently reported its 2024 Q1 results, and funnily enough, investors already had an idea of what to expect, thanks to a recent post CEO Anthony Noto made on X, where he used the phrase “My 2 cents.” This led many investors to think that he was hinting at an EPS of 2 cents, while others said that it was just a common phrase and he wasn’t actually hinting at anything. It turned out that the first team was right, as SoFi’s diluted EPS came at 2 cents, beating Wall Street’s call of 1 cent, and the company’s overall results were great, marking its second quarter of profitability.
In addition to that, SoFi managed to top revenue estimates, and boost its fiscal year guidance. But despite these amazing results and massive estimate beats, SOFI stock fell more than 10% following earnings. Here’s why.
SoFi’s 2024 Q1 Earnings
SoFi’s total adjusted net revenue hit $581 million, representing 26% year-over-year growth. In addition to that, it beat analysts’ expectations of $555 million. Meanwhile, net income for the quarter came in at $88 million, significantly beating estimates of $15 million. It’s also a huge improvement from last year’s $34 million loss for the same quarter.
Additionally, the company’s total deposits grew by a record of $3 billion, up 16% during the first quarter to $21.6 billion at quarter-end, with over 90% of SoFi Money deposits, which are inclusive of Checking, Savings and cash management accounts, coming from direct deposit members. Another positive thing SoFi reported was the increase of Galileo accounts, as the platform added around 6 million new accounts in the quarter. The bank also added 622,000 members, and around 989,000 new products, bringing the total to 11.8 million.
Why Did SOFI Stock Fall?
SOFI stock is down by around 26% since the beginning of the year, and right after the company reported earnings, it actually rose by around 7%. Therefore, naturally, investors were confused when the stock fell more than 10% after earnings. However, the reason for this drop becomes clear after looking at SoFi’s guidance for this year’s second quarter. For its second quarter, SoFi said that it forecasts adjusted net revenue of $555 million to $565 million, which came way below analysts’ expectations of $581 million.
This obviously disappointed investors, and many chose to just take profits after the initial jump in the price, expecting Q2 earnings to be bad thanks to SoFi’s forecast. There are multiple reasons why SoFi put out a disappointing guidance, and one of them is actually the fact that its high net income for this quarter was probably a one time thing. In the report, the company said that its $88 million net income was a one-time benefit from exchanging convertible debt of $59.2 million, so without this one-time benefit, net income is actually around $29 million.
As for the other reasons behind the market’s reaction, CEO Anthony Noto said that it’s hard to predict what’s going to happen with the stock, but the business itself is doing incredibly well and the strategy is working. He also added that SoFi took a conservative view on lending because of how unstable the interest rates environment was and once everything stabilizes, SoFi plans to go all in on lending.
SoFi’s Expectations for the U.S. Economy
In a recent interview with Bloomberg Technology, CEO Anthony Noto said that SoFi decided to take a planning stance that was really conservative as it entered 2024. The planning stance SoFi took was that there would only be four rate cuts, while the market was factoring in six rate cuts at the time. The company also took a planning stance on unemployment that would be more than 5%, while the market was well below that. Additionally, SoFi also took a stance on GDP contraction that was modest.
Noto points out that today, the market is only factoring in one to two interest rate cuts, so he’s really thankful that his company took a conservative stance going into the year and that it still has a conservative stance.
SOFI Stock Forecast
Even though the company’s Q2 guidance disappointed investors, SoFi still upgraded its full year forecast, which indicates that its outlook for the full year is positive, and this could mean that the rest of 2024 will continue to be a great year for SOFI stock investors. For the full year, the company forecasts adjusted net revenue of $2.39 billion to $2.43 billion, higher than a prior range of $2.36 billion to $2.40 billion.
It also forecast earnings per share of 8 to 9 cents per share, above the previous call of 7 to 8 cents. These are extremely strong forecasts by the company, and given that SoFi hit the forecast of achieving bottom-line profitability in Q4 of 2023 and Q1 of this year, there’s no reason to think that SoFi won’t be able to achieve all of this.
Compared to analysts’ expectations, SoFi’s forecasts are a bit more ambitious, as analysts expect revenue of $2.37 billion and an EPS of 8 cents. SoFi is being conservative with its Q2 forecast thanks to the macro environment and uncertainties, and investors already knew that lending revenues will be lower this year, as SoFi said in its 2023 Q4 results that lending revenue will be 92% to 95% of the year prior’s level. In its earnings release, the company said that 2024 remains a transitional year for SoFi as the Tech Platform and Financial Services segments together are expected to drive growth and increase from 38% of total adjusted net revenue in 2023 to approximately 50% for the full year of 2024, which is still incredible news for the company.
We could say that the drop in SOFI stock after earnings was just an overreaction from the market. There’s nothing really wrong with the company itself, as it beat all estimations, and the reason why it’s forecasting lower revenues is because it’s choosing not to go so aggressive on lending in an uncertain interest rates environment. Once we have a better idea on what the Federal Reserve plans to do with the rates, SoFi will adjust its strategy accordingly, so there’s no need to worry about SoFi’s full year performance, or its long-term growth prospects.
SoFi is expecting a lot from its tech platform and financial services segments, and by looking at the company’s financial statements and comparing the revenues and expenses of these segments, we could see that tech platform revenue is up by 21% year over year, while expenses are up only 1% year over year. Similarly, financial services revenue is up 86% year over year, while its expenses are up only 8% year over year. This is great on SoFi’s part, because its fastest growing services don’t have very high costs.
This isn’t a stock for investors who aren’t willing to buy and hold for the long-term, but for those who are, SOFI stock could be a golden investment opportunity for the company’s forward-looking thinking and technology advancements.
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