Shares of fintech company SoFi Technologies (NASDAQ: SOFI) surged over 5% yesterday after it announced Q3 results that surprised Wall Street and investors. In the September quarter, SoFi reported revenue of $424 million and a loss of $0.09 per share. In the year-ago quarter, it reported revenue of $272 million and a loss of $0.05 per share.
While sales surged 56% year over year, its net losses almost doubled compared to the year-ago period. Comparatively, Wall Street forecast revenue of $392.8 million and an adjusted loss of $0.10 per share for SoFi in Q3.
We can see the earnings and revenue beat drove SOFI stock price higher this week. But let’s take a closer look at what drove the company’s financials in Q3 of 2022.
SoFi continues to expand its user base
In Q3, SoFi added 424,00 members to its ever-expanding ecosystem allowing it to end the quarter with 4.7 million members. Galileo, its fintech vertical, also attracted users and experienced an uptick in the number of quarterly loans, despite a challenging macro-environment.
The company’s student loan originations, which are still below pre-pandemic levels, surged 15% on a sequential basis, while personal loan originations were up 14% from Q2.
SoFi expects to end with sales ranging between $1.517 billion and $1.522 billion, compared to consensus estimates of $1.5 billion. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for the current year is forecast at $117.5 million at the midpoint compared to its earlier EBITDA guidance of $107 million. Its adjusted EBITDA in Q3 stood at $44.3 million.
SoFi secured a bank charter in Q1 of this year, and company CEO Anthony Noto stated, “Our bank charter is enabling new flexibility that has proven even more valuable in light of the current macro environment, and the economic benefits are already starting to materialize and positively impact our operating and financial results.”
Soon after receiving the charter, SoFi. Launched a checking and savings offering with a no balance requirement while offering an annual yield of 2.5% on deposits. Its total deposits increased by 86% to $5 billion at the end of Q3. Further, 85% of its money deposits originate from direct deposit members.
Is SoFi stock price undervalued or overvalued?
SoFi stock went public in late 2020 and is currently down 77% from all-time highs, valuing the company at a market cap of $4.58 billion. So, SoFi stock is trading at 45 times 2022 EBITDA, which is still quite steep even though its price-to-sales ratio is around 3x.
While its interest income from loans more than doubled year over year to $191 million, SoFi’s provision for credit losses was up 7x at $16.23 million. Its operational costs surged to almost $500 million compared to the year-ago number of $301 million.
The company has to lower its customer acquisition costs drastically to report an adjusted profit consistently in the future. A higher interest-rate environment will, however, allow SoFi to narrow its loss per share to $0.26 in 2023 from a loss of $1 per share in 2021.
SoFi ended the quarter with more than $900 million in cash, up from $494 million in 2021, providing it with enough reserves to offset its cash burn rate.
Analysts tracking SoFi stock remain bullish and expect it to recover by 60% in the next 12 months.