SoFi Q4 2022 Earnings: Strong Recovery Potential (NASDAQ:SOFI)

SoFi (NASDAQ:SOFI) submitted a strong earnings sheet for its fourth-quarter yesterday and the personal finance company also presented an impressive EBITDA outlook for the current year. The report sent shares of SoFi up by 13% yesterday, but I believe the company’s upside potential is not anywhere near being exhausted. What was especially strong in the fourth-quarter was SoFi’s customer acquisition which pushed the firm’s total customer count above 5M at quarter-end for the first time ever. I believe the risk profile is highly favorable for shares of SoFi and a resumption of student loan repayments could be the catalyst that investors have been waiting for!

Strong customer acquisition

What I like the best about SoFi is the strength with which the company presents itself on the customer acquisition front. The personal finance company acquired 480 thousand new members just in the fourth-quarter, which brought the customer total at the end of the quarter to 5.22 million. I previously estimated that SoFi would end the year with 5.0-5.2M customers in its ecosystem, a figure that SoFi slightly beat.

Although SoFi’s acquisition growth slowed from 87% in Q4’21 to 51% in Q4’22, the company’s accomplishments regarding customer acquisition are nothing but impressive: in the fourth-quarter, SoFi signed on 480 thousand new members — the equivalent of adding 160 thousand new customers on average every month — which was the second-biggest addition of new customers ever. Only in Q4’21 did SoFi acquire more customers (523 thousand) than in the last quarter.

Member growth is starting to translate into EBITDA growth

SoFi generated $443M in adjusted revenues in the fourth-quarter, showing 58% year over growth, with growth chiefly being driven by strong member acquisition and a continual expansion of available financial and lending products on the SoFi platform. The personal finance company also saw a significant improvement regarding its adjusted EBITDA, which totaled $70M and which represented a 14-fold increase over the year-earlier adjusted EBITDA level.

Strong growth outlook for FY 2023

SoFi guided for total revenues of $1.925B to $2.0B in FY 2023 which represents a year over year growth rate of 27% on a mid-point basis. Adjusted EBITDA, a key metric for SoFi that adjusts for depreciation, amortization and share-based expenses, is expected to fall into a range of $260-280M which implies a year over year growth rate of 89%. The outlook is impressive and suggests that the personal finance company will continue to be able to translate member growth to adjusted EBITDA growth. Additionally, SoFi’s EBITDA margins are improving and expected to further expand: the FinTech now expects to grow its adjusted EBITDA margin from 9% in FY 2022 to 14% in FY 2023.

I previously estimated in “SoFi Technologies: Tough Blow” that because of the expected resumption of student loan repayments in FY 2023, SoFi could see only $150M in adjusted EBITDA, a figure that is much too low.

SoFi’s outlook for FY 2023 gives investors (and me) a strong reason to reevaluate the company’s growth potential. The reboot of the student loan origination business is set to be a potent catalyst for SoFi and the company is planning with the start of student loan repayments this year. In November, the Biden administration extended the Federal Student Loan Payment Moratorium from December 2022 to June 2023.

Due to multiple delays relating to the restart of student loan repayments in FY 2022, SoFi experienced a major down-turn in its student loan origination business. As a result, loan originations slumped to $2.25B, showing a 48% decrease compared to FY 2021. The end of the moratorium this year could reinvigorate SoFi’s origination business as borrowers resume making interest payments.

SoFi’s valuation

SoFi is expected to generate revenues of $2.0B in FY 2023 which represents the top end of SoFi’s recently communicated guidance. For next year, FY 2024, analysts expect $2.5B in revenues, implying yet another year of strong growth for the personal finance company. SoFi is currently valued at a P/S ratio of 2.5 X, below its 1-year average P/S ratio of 3.0 X. Considering that SoFi traded at a sales multiplier factor of more than 5.0 X in the last year, I believe SoFi definitely has potential to revalue to the upside… as long as the company reports strong customer acquisition rates and expanding EBITDA margins.

Risks with SoFi

The biggest risk with SoFi is that acquisition rates will continue to slow. Although SoFi is likely to still add a significant absolute number of new members to its ecosystem in the coming quarters, SoFi’s acquisition and top line growth rates are set to moderate going forward. What I also consider to be a risk for SoFi is an unexpected extension of the Federal Student Loan Payment Moratorium which would prevent a reboot of SoFi’s student loan origination business and likely result in a down-grade of SoFi’s EBITDA guidance.

Final thoughts

SoFi submitted a fantastic earnings report for the fourth-quarter that included strong customer acquisition rates and an impressive outlook for FY 2023… both of which demonstrate that SoFi has a lot more gas in the tank. What is also impressive is that SoFi has been able to translate member growth to adjusted EBITDA growth which resulted in 14 X factor increase in adjusted EBITDA in Q4’22 compared to the year-earlier period. I believe investors underestimate SoFi’s growth potential and the stock can further revalue to the upside!