SoFi Technologies stock experienced a powerful start to the week, surging 20% on Monday. This jump came following impressive deposit numbers and a narrower-than-expected loss for its second quarter, coupled with an upward revision to its financial guidance.
However, Wall Street remains forward-looking. SoFi (ticker: SOFI) has announced its intention to achieve profitability in terms of GAAP net income by the fourth quarter of 2023. Analysts and investors are particularly focused on this roadmap to profitability and how SoFi’s growth trajectory will evolve in the coming years.
Although shares have more than doubled in value this year, the stock experienced a 7.7% decline, settling at $10.57 on Tuesday. This drop was primarily triggered by a downgrade that highlighted concerns about growth and valuation.
Keefe Bruyette analysts made the decision to downgrade SoFi’s shares from Market Perform to Underperform, despite raising their price target to $7.50 from $5.50 in their report on Monday. The analysts acknowledged the challenge of downgrading shares that have experienced such a remarkable ascent, but ultimately emphasized that the stock’s valuation has surpassed its underlying earnings outlook.
Keefe analysts also voiced their prediction that SoFi’s growth rates will likely moderate, adding, “Profitability will be modest at best in 2024.”
Echoing these sentiments, Wedbush analysts released a report on Monday, striking a similar tone. They anticipate a potential deceleration in the company’s high revenue growth next year unless there is a capital raise to sustain this growth.
Despite the recent surge and positive developments, it appears that concerns surrounding SoFi’s growth prospects and valuation are causing some caution on Wall Street.
SoFi Faces Potential Credit Quality Challenges, According to Wedbush
Financial technology firm, SoFi, has been performing well in terms of credit quality compared to its competitors, but this could change if a mild recession occurs next year, according to Wedbush. The rating agency has assigned an Underperform rating to SoFi’s shares with a price target of $3.
SoFi’s Pursuit of Becoming a Comprehensive Financial Services Provider
SoFi’s Chief Executive Officer, Anthony Noto, recently highlighted the company’s journey towards becoming a one-stop shop for financial services. SoFi currently operates in three main segments: financial services, lending, and technology platform.
Focus Shifted Towards Financial Services Segment Despite Losses
Although SoFi experienced a loss in its financial services segment during the most recent period, it remains the segment of interest for investors. In the second quarter, this segment reported a contribution loss of $4.3 million, a significant improvement compared to the $53.7 million loss in the same period last year. However, Noto acknowledged that it will take some time before this segment becomes profitable.
Strong Performance in Lending and Technology Platform Segments
On the other hand, SoFi’s lending segment showed a contribution profit of $183.3 million in the second quarter, while the tech platform segment brought in $17.2 million in profits.
Analysts’ Opinions Remain Diverse Regarding SoFi
According to FactSet, a majority of analysts are maintaining a neutral stance on SoFi’s shares, with 45% rating them as Neutral. Meanwhile, 35% rate them as Buy, and 20% as Sell.