Hi all 👋
Paid subscribers to MMMT Wealth get at least 2 deep dives per month, my exact portfolio, a paid subscribers chat, and my timing on any trims and additions. I currently have just over 20 stocks in my portfolio, all of which I believe have a chance to at least 2x (and some models suggest +5x)
In this post, I’m going to cover SOFI’s Q1 earnings report and offer my thoughts on the current estimates and my investment model. Also, over the next week I’ll be uploading my TMDX Deep Dive 1 (before earnings) and Deep Dive 2 (post earnings).
Introduction
SOFI continues to confuse me, but I’m also extremely confident in the long term outlook. However, despite a history of 16 out of 16 revenue beats and 11 out of 14 EPS beats, SOFI rarely increases post earnings. Yesterday, we saw a nice increase but we ended up erasing almost all of those gains throughout the trading session and today we dropped 7% on recession fears.
Ultimately, every quarter we see fundamentals improve and every quarter we’re ticking towards a nice stock price, but it’s happening far slower than I thought. I did think SOFI would be in the high teens now, but I’m completely fine that it’s not. I’m not a trader and I don’t invest over short time frames.
Growth
First things first, SOFI is no longer a high growth company and although revenue beats are nice, this is no longer the driver of the stock price and never materially will be again. SOFI was a high growth company back in 2022 and 2023 where they were growing revenues at 52% and 35% respectively but those days are gone now with SOFI reporting growth rates just above 20%.
However, they still managed to grow members by 800,000 reaching 10.9 million which is 34% YoY growth and a great sign for the future when SOFI’s cross selling expertise comes into full fruition. I’ve been slightly worried about SOFI’s lack of innovation and slow release of products over the last few months, especially relative to HOOD, however, this was the best quarter in terms of number of product additions SOFI has ever since which completely undermines this worry. Further, 32% of all new products were opened by existing members solidifying one of the many long term bull thesis out there for SOFI.
Most importantly, this all led to Q1 revenue of $771 million which is up 33% YoY and the highest growth rate SOFI has seen in five quarters.
Ultimately this all translated into a solid and profitable quarter with $210 million in adjusted EBITDA (46% YoY growth) at an adjusted EBITDA margin of 27% and net income of $71 million at a margin of 9%. EPS also come in at $0.06.
The more positive sign of this quarter for me was the $315 million in ($1.3 billion annualized) in fee based revenue which is some extremely strong growth, but also low risk growth. Management have continued to say that this will be a key driver for SOFI moving forward and hopefully this will take away a lot of the bearish takes I see for SOFI.
The other important segment to track is the financial services division which hit $303 million in Q1 relative to $150 million just 12 months ago marking 101% increase YoY. This shows the investment into tripling the amount of financial services products in just 3 years, the rewards of offering a higher than market average APY, a solid P2P payments service, Zelle, and much more.
A big opportunity (though uncertain) for the financial services segment lies in SoFi Invest, a competitor to HOOD, though I don’t see it being the winner in investing just yet. Customers won’t flock to SOFI’s investment platform because quite simply HOOD is better, it’s their niche, but if SOFI can retain members on the platform and still offer a comprehensive amount of investing options with decent UX, then you never know. The issue is HOOD have already positioned themselves as the go to platform for crypto, options, and stock investing and I worry SOFI were slightly too late here.
Moving on to the tech platform, which so far has been the biggest disappointment for SOFI with a lack of growth, a lack of commentary, a lack of execution, and a lack of guidance, we saw some more average growth, but still some very limited management commentary. This is something that is really holding SOFI back from having a very strong argument that they deserve materially higher multiples. It appears that the tech platform wins won’t really be represented in the SOFI numbers until 2026 at the earliest. As soon as the tech platform numbers convince investors that SOFI is a financial services platform combined with a very strong and scalable technology platform, the value proposition is clear and a 4.1x sales multiple becomes quite clearly too low. FWIW, I think the 4.1x multiple is definitely on the lower end today, but there’s definitely arguments that can be made oppositely.
Valuation
Noto (CEO) has famously been quite conservative with his guidance because for him beating and raising every quarter is important. Current guidance is for between $3.235 and $3.310 billion for FY25 which means the $766.1 million of revenue in Q1 was 23.1% of FY25 guidance. So if SOFI increase revenues at just 6% QoQ that would mean they’d hit $812.1 million in Q2, $860.8 million in Q3 and $912.5 in Q4 which would mean a total of $3.352 billion which would top the upper end of current guidance by 1.3%, and that’s based on conservative growth rates.
Let’s look at SOFI’s growth vs HOOD’s growth. Though HOOD is growing quicker at ~50% YoY whilst SOFI is doing 33%, HOOD’s sales multiple is almost 3 times larger than SOFI’s so by that comparison SOFI is quite undervalued.
The other comparison I like to make is against LC and UPST where SOFI is:
Growing revenues quicker
Has far larger market share
Is considerably more profitable
Yet, UPST has a NTM P/S of 4.5x whilst SOFI has 4.0x (and also has a tech platform and a financial services division growing at 100% YoY). Ultimately, for SOFI to be trading at a P/S below UPST I think does not make any sense given profitability and revenue growth. SOFI should be trading at a multiple at least 50% higher than UPST’s multiple which would put them at a 6.75x multiple (which is where they traded at earlier in 2025) when they were a $17-18 stock.
If you carry this multiple forward to $3.35B of revenue in FY25 and $3.95B in 2026 (19% growth), then you’re looking at a market cap of $26.7B which translates into a $25 stock.
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Of course we have to take into account the macro uncertainty, but SOFI have proven they have the flexibility to manage this very well in past so I wouldn’t be surprised if we see another slight raise in guidance in FY25.
They also expect $895 million (upper end) in EBITDA in 2025 which means this would be a 34.4% YoY and a 107% increase in 2 years. This means they’re trading at FY25 15.4x EBITDA for 34.4% growth which is pretty good. If they manage to beat the top end of EBITDA by 4-5%, then you’re looking at ~$935 million in EBITDA in FY25 which then puts them at ~14.7x FY25 EBITDA for 40.4% increase which is of course even more compelling.
For reference, HOOD had $1.4B in EBITDA in FY24 and is expecting ~$2B in EBITDA in FY25 which would be a 42.9% increase. They trade at 21.7x FY25 EBITDA so you could argue that SOFI is more undervalued than HOOD, but I think HOOD is even quite undervalued.
Ultimately, I think the below analyst targets are way off:
Q1 25 were some very good results for SOFI. I’m fully aware I’ve spoke a bit less about the specific results and a bit more about assumptions and forecast growth rates, but quite simply I don’t see how SOFI isn’t a $25-30 stock over time. If it takes longer than we expect, then I don’t mind too much because I think SOFI is one of the more obvious 2x opportunities in the market today.
That’s all for today!
I do hope you found this article useful. If there’s any feedback or additional information that you think would be necessary, please do reach out to me and let me know or leave a comment below.
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I have been wheeling covered calls and cash-secured puts on SOFI for years. It has been very profitable.. I am also long a small position.