We came across a bullish thesis on SoFi Technologies, Inc. (NASDAQ:SOFI) on Substack by Data Driven Investing. In this article, we will summarize the bulls’ thesis on SOFI. SoFi Technologies, Inc. (NASDAQ:SOFI)’s share was trading at $15.40 as of Dec 31st. SOFI’s trailing and forward P/E were 128.33 and 76.92 respectively according to Yahoo Finance.
A businessperson checking their laptop, highlighting the company’s integration of technology across its banking and financial services.
SoFi is making impressive strides toward its ambitious goal of achieving 60 cents of EPS by 2026. The company’s recent performance across its lending, tech platform, and financial services segments demonstrates both significant progress and challenges. In its lending segment, which remains SoFi’s largest and most profitable business, the company has surpassed expectations for 2024. Despite initial guidance predicting a slight contraction, lending revenue has grown 6.7% year-over-year through Q3, driven by stellar Q3 performance. Contribution margins have remained steady, ensuring profitability. This outperformance alleviates pressure on the segment for future growth, making the long-term target of a 15% CAGR more achievable, particularly with easing rates and improving credit conditions enhancing the lending outlook.
Conversely, the tech platform segment, anchored by Galileo, has struggled to meet growth expectations. Originally forecasted to achieve 20% growth in 2024, the segment has delivered only 14.4% growth through three quarters, prompting SoFi to lower its guidance. While contribution margins remain robust at 32%-33%, consistent with long-term goals, the segment faces heightened pressure to achieve accelerated growth in 2025 and 2026. Encouragingly, recent wins like partnerships with Rapid Finance, the U.S. Treasury’s Direct Express®, and Mesh Payments underscore Galileo’s potential. The Mesh Payments deal, which integrates SoFi’s full suite of services, demonstrates the unique value proposition of their tech platform, signaling room for future growth.
The financial services segment has emerged as the standout performer, exceeding even the most optimistic expectations. Fueled by the introduction of a new loan platform business, the segment has achieved 90% growth year-over-year through Q3, far outpacing its initial 75% guidance. This growth has been coupled with remarkable margin expansion, with contribution margins already exceeding 40%. The new loan platform’s margins rival those of the lending business, and the potential for further improvement, particularly in underperforming areas like credit cards and brokerage, suggests this segment could sustain its outsized contribution to overall profitability.
On the expense front, SoFi has managed disciplined cost control, aiming for long-term growth in non-direct expenses to remain around 10% annually. While this remains a challenging area to project, the company’s ability to align its revenue growth and contribution margin expansion across segments provides a solid foundation for reaching its EPS target. With a clear trajectory and substantial outperformance in key areas, SoFi’s prospects for 2026 remain bright, albeit with some execution risks that need addressing.
SoFi Technologies, Inc. (NASDAQ:SOFI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 31 hedge fund portfolios held SOFI at the end of the third quarter which was 29 in the previous quarter. While we acknowledge the risk and potential of SOFI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SOFI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.