Deutsche Bank analyst Mark Devries initiated coverage on SoFi Technologies, Inc SOFI with a Hold rating and a price target of $11.
The re-rating reflected limited visibility on tech platform growth needed to support the valuation.
SoFi was founded initially as Social Finance Inc by four recent graduates to consolidate student loans and reduce effective interest payments.
They have since evolved into an online bank with various personal finance and consumer lending solutions in addition to licensing their infrastructure technology.
Also Read: SoFi Technologies Rallies as It Ups IRA Contributions Match to 2% Ahead of Tax Day
Despite nearly all revenues from consumer lending, SOFI continues to trade much more like a tech business detached from any near-term economics.
SoFi is approximately 45% owned by retail shareholders, causing significant volatility.
Keys to 2024 performance included technology sales growth, account growth, relationship deepening, and path to profitability.
Given the very different margin and valuation profiles between technology and consumer lending businesses, the analyst noted software sales growth is currently driving the valuation more than anything.
The analyst flagged that SoFi’s online banking franchise provides a sticky, low-cost source of funds with incremental revenue opportunities through cross-selling additional products.
The analyst highlighted that SoFi is slightly below GAAP profitability, but they are investing meaningfully in marketing, which could be dialed back if needed, given they still have a $2.8 billion cash runway.
If SOFI is to become the Amazon.Com Inc AMZN “AWS of banking services,” it will need to return to the strong growth in the Technology platform that it had until 2023, the analyst noted.
The Financial Services Segment has been delivering consistently robust product growth and is starting to realize operating leverage.
The analyst projected Q4 revenue and EPS of $563.1 million (vs. consensus of $570.6 million) and $(0.01) (vs. consensus of $0.00).
Price Action: SOFI shares traded higher by 1.50% at $8.44 on the last check Wednesday.
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