In 2024, the S&P 500 index continues to reach extraordinary new heights, largely fueled by a wave of optimism following the Federal Reserve’s recent reduction in interest rates. Many stocks benefited from this momentum, but SoFi Technologies (NASDAQ: SOFI) has yet to experience a similar boost. Currently trading below $10, it presents a compelling opportunity for savvy investors.
Over the last several years, SoFi has strategically diversified its offerings. Despite its well-deserved growth, the stock remains down approximately 51% since early 2022, a period coinciding with the Federal Reserve’s hiking cycle. Nevertheless, the company has dramatically increased its deposit numbers, raising some concerns about its credit portfolio.
As interest rates ease, now may be the ideal moment for investors to consider adding SoFi to their portfolios.
SoFi’s Transformative Journey
The decline in SoFi’s stock price does not accurately depict its operational advancements. Originally launching as a fintech solution focused on student loans, the company made a strategic pivot by acquiring Golden Pacific Bancorp in 2022, allowing it to hold customer deposits and provide loans. This shift occurred just before the Fed’s aggressive rate hikes, enabling SoFi to capitalize on the higher interest climate.
In 2023 alone, SoFi generated almost $1.3 billion in net interest income—an astonishing 400% increase from 2021. The positive trend has continued into 2024, with net interest income soaring by 55% year over year to $815 million. SoFi’s deposit ecosystem has similarly thrived, climbing to nearly $23 billion, partly fueled by its attractive high-yield savings accounts offering up to a 4.5% annual percentage yield (APY).
While it has historically operated at a loss, SoFi is beginning to turn the tide: it reported a net income of $105 million in the first half of 2024, an increase from $82 million during the same period in 2023, marking three consecutive quarters of profitability.
SoFi’s Vision: Becoming the Backbone of Fintech
SoFi’s core banking sector is steadily advancing, but its technology arm is truly exciting. The company has spent heavily on developing its platforms, particularly through acquisitions like Galileo and Technisys. Galileo provides essential infrastructure for fintechs lacking banking licenses, enabling them to handle payments and various banking services via SoFi’s technology. Technisys replaces outdated systems, fostering innovation and allowing real-time data analysis.
As this tech stack matures, SoFi aspires to position itself as the Amazon Web Services (AWS) of fintech. The technology platform has started to generate its own revenue, reporting a 15% increase to $190 million in net revenue during the first half of 2024, accompanied by an impressive 33% contribution profit margin.
What Lies Ahead for SoFi
Despite the promising growth, there are concerns regarding SoFi’s lending operations. In the second quarter, the company’s net charge-offs on its $16 billion personal loan portfolio rose to 3.84%, up from 2.94% a year earlier. Lending activities have also reportedly declined amid broader market uncertainties. As SoFi navigates potential risks in its loan portfolio, investors must keep a close watch on these metrics to ensure financial stability.
On the upside, reduced interest rates could provide a significant boost to SoFi. CEO Anthony Noto stated that the company plans to maintain competitive high interest rates, enhancing its deposit growth. Lower borrowing costs driven by upcoming Federal Reserve rate cuts will make refinancing all the more appealing to consumers, potentially increasing lending activity.
Is Now the Right Time to Invest in SoFi?
Analysts suggest the company is on the verge of income growth, forecasting net income to reach $173 million for 2024 and increasing to $320 million by 2025. As SoFi’s fundamentals improve, the anticipated drop in interest rates could further catalyze its financial performance.
With a multifaceted growth strategy in play, many investors are contemplating whether to seize the moment and invest in SoFi Technologies while it’s trading below the $10 mark. The combination of growing earnings and a favorable interest rate environment makes it a compelling proposition for those seeking exposure to a promising fintech player.
Explore your investment options wisely.