SoFi Technologies (NASDAQ: SOFI) stock has been in a slump this year. It hasn't managed to wow investors despite a strong performance, and it's lost a good chunk of its 2023 gains, which topped 100%.
The fintech superstar cranked out another fabulous report for the second quarter. Is it finally time to buy?
What's happening at SoFi
SoFi delivered solid results for the 2024 Q2, beating internal guidance across the board and Wall Street's expectations. Adjusted revenue increased 22% year over year to a record $597 million, and net income was $17 million. It added 643,000 new members for a total of 8.8 million and almost 100,000 new products for a total of 12.8 million. Earnings per share (EPS) were $0.01, and analysts were expecting just over $0. Not only was the company profitable on a consolidated basis, but all three segments were profitable on a contribution basis as well.
Lending performed better in Q2 than in Q1 when revenue declined. Lending revenue increased 3% year over year in Q2, and products increased 19%. There was strength across categories, with originations up 12% for personal loans, 86% for student loans, and 71% for home loans.
The standout was the financial-services segment. Products increased 39% year over year while revenue increased 80%. SoFi has leaned away from its lending business and built out an impressive array of services for a complete financial-management business. Together with the tech-platform segment, these non-lending segments increased 46% year over year, and they're expected to account for a higher percentage of overall revenue.
SoFi goes on the offensive
Investors have been concerned about the pressure in lending. But the expansion model is doing its job, shielding SoFi from the worst of the interest rate issues. CEO Anthony Noto said that it's a high-growth, low-capital business, and that's where it's investing its resources. Noto believes that the best way forward for SoFi is to embrace the expansion model, and it added several significant features in Q2, such as Zelle capabilities for money transfers and a 10% cashback boost for SoFi Plus members.
The company is also developing its investment tools, and assets under management increased 58% year over year in the quarter. It recently rolled out alternative assets and mutual funds, and that drove 12% of net flows. SoFi's advantage lies in its products' ease of use and, arguably, a large part of its attraction. The company added one-click transfers for assets to the investing platform to make it as simple as possible to move funds.
Management also believes its tech-platform business is on its way to "becoming the AWS of financial services," and this business-to-business product is another way SoFi is broadening its operations.
When will investors be impressed?
As of this writing, SoFi stock has already lost the initial gains on the report. That's what happened after the Q1 report, too.
Noto pointed out that in the analyst-earnings call after the report, every question except one was related to the lending segment. The market is still hyperfocused on the lending business, but Noto is driving the company toward the more complete version of a financial-services app with the non-lending segments, and it's going extremely well. Even lending improved sequentially in Q2, although it's still expected to be lower than last year. Management raised it guidance for lending, too. It originally said the lending business would be 92% to 95% of 2023 levels, and it reiterated that in Q1. It now says the lending business will be at least 95% of 2023 levels, which should have been a positive update, but it still wasn't well received by the market.
It's possible that SoFi stock won't meaningfully increase before interest rates come down, but it has incredible long-term potential as it disrupts traditional banking. Management's goal is to become a top-10 U.S. financial institution, and at these growth rates, that could be a realistic goal. If you can handle volatility in the near term and have an appetite for risk, SoFi should be on your buy list.
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Jennifer Saibil has positions in SoFi Technologies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
SoFi Stock Is Down Again After Earnings. When Will the Market Wake Up? was originally published by The Motley Fool