SoFi Technologies (SOFI -2.41%) stock lost 34% of its value in the first six months of 2024 according to data provided by S&P Global Market Intelligence. There have been several changes to SoFi's business, and investors are concerned.
The news is good... mostly
On the surface, SoFi is doing great. It's reporting robust growth, including a 26% year-over-year increase in revenue in the 2024 first quarter. The first quarter was its second straight with a generally accepted accounting principles (GGAP) profit, and management is guiding for that to continue in the second quarter and the full year.
Its all-online business that streamlines financial services for students and young professionals is resonating with its core target market. It's still adding hundreds of thousands of new members quarterly, hitting 8.1 million by the end of the quarter. More members are adding more products, and SoFi's expansion of its product line is leading to growth and profitability at scale. The non-lending segments of its technology platform, its business-to-business platform, and financial services together increased 54% year over year in the first quarter. SoFi is the future of banking, and it's taking steps to secure its strong fintech platform with upgrades and acquisitions.
But there are some hidden problems centering around its lending business. And even though it's expanding its other businesses, which are growing quickly, lending is still its bread and butter. The root of the problem is the shift itself. Management has told shareholders several times that it expects its loan book to be 92% to 95% of its 2023 levels this year. Lending is pressed as interest rates remain high, and this isn't a problem exclusive to SoFi.
As interest rates remain high, SoFi can expect its default rate to rise. Lending platform revenue declined 2% in the first quarter, and investors are wary about further pressure here.
Is SoFi stock a buy?
I think management gets brownie points for being on top of its business and pointing out the situation to shareholders. It's not ignoring or pretending, and it's prepared for the change in its business. Investors are responding negatively, but businesses are always changing. The best thing a company can do is be ready for changes and adapt accordingly. This builds confidence in SoFi's management team and its ability to manage through this shift effectively.
SoFi stock more than doubled last year, so it's not surprising that it's getting a little correction. Without it, SoFi stock would become very highly valued. At the current price, though, it looks like it could be undervalued. Considering SoFi's powerful platform, high growth, popularity, and able management, SoFi stock looks like a buy at this price, as long as you have a bit of an appetite for risk.
