Deutsche Bank analyst Mark Devries has initiated coverage on SoFi Technologies, Inc (NASDAQ:SOFI) with a Hold rating and a price target of $11. The re-rating reflects limited visibility on tech platform growth needed to support the valuation.
SoFi, initially founded as Social Finance Inc by four recent graduates, has evolved into an online bank with various personal finance and consumer lending solutions. They also license their infrastructure technology.
Despite generating nearly all revenues from consumer lending, SOFI continues to trade more like a tech business detached from any near-term economics. The company is approximately 45% owned by retail shareholders, causing significant volatility.
The keys to SoFi’s 2024 performance include technology sales growth, account growth, relationship deepening, and the path to profitability. The analyst notes that software sales growth is currently driving the valuation more than anything.
SoFi’s online banking franchise provides a sticky, low-cost source of funds with incremental revenue opportunities through cross-selling additional products. The company is slightly below GAAP profitability but is investing in marketing. They still have a $2.8 billion cash runway.
To become the “AWS of banking services,” SoFi will need to return to strong growth in the Technology platform that it had until 2023. The Financial Services Segment has been delivering consistently robust product growth and is starting to realize operating leverage.
The analyst projects Q4 revenue and EPS of $563.1 million and $(0.01) respectively. SOFI shares traded higher by 1.50% at $8.44 on the last check Wednesday.