SoFi Technologies (SOFI -3.74%) has been a standout performer, with the stock price skyrocketing by an impressive 240% since the beginning of 2023. This fintech company reinvented itself during the past few years, reported its first profitable quarter last year, and now has four consecutive profitable quarters under its belt.
As SoFi's bottom line improves and it continues attracting new customers, the question on many investors' minds is: Could buying SoFi stock today pave the way to millionaire status? Let's delve deeper into its potential and what it would take to make that possible.
SoFi's transformation has been years in the making
SoFi has demonstrated impressive adaptability since its founding in 2011. Initially, the company focused on refinancing student loans. However, the pandemic in 2020 presented a significant challenge when the federal government instituted a payment moratorium on those loans.
In 2020, SoFi originated $2.6 billion in personal loans compared to $4.9 billion in student loans. Recognizing the need for change, SoFi shifted its focus to personal loans. By 2023, personal loan originations ballooned to $13.8 billion, increasing 430%, while student loan origination dropped to just $2.6 billion.
Another key step in SoFi's transformation was its acquisition of Golden Pacific Bancorp for $22 million in 2022. This acquisition helped SoFi transform its business from lending to becoming a full-blown financial services provider. With the newly obtained bank charter, SoFi could offer a full suite of banking products, including checking and savings accounts, credit and debit cards, investment accounts, and advanced technology solutions.
Holding a bank charter has significant advantages. One of those is that SoFi can collect deposits, which gives it a solid foundation to fund its lending. It also allows SoFi to hold loans on its balance sheet and benefit from higher net interest income, which became evident in the rising interest rate environment in recent years.
Last year, SoFi generated an impressive $1.3 billion from net interest income, a 116% increase from the previous year. Through three quarters of this year, SoFi's net interest income of $1.2 billion is up 43% from the same period a year ago.
SOFI Revenue (TTM) data by YCharts
Diversifying its revenue through technology
SoFi is growing well as a bank, but it looks to set itself apart from its competitors with its innovative technology platform. In recent years, investments in Galileo and Technisys have enabled SoFi to build technology infrastructure to deliver banking services to non-bank companies.
Galileo functions as the crucial back end for fintech companies that lack banking charters, letting them manage payments and provide various banking services seamlessly through SoFi. Meanwhile, Technisys addresses the challenges of outdated legacy systems that often stifle innovation. This modern platform can support multiple products, operate in the cloud, and facilitate real-time data processing and analysis for banks.
With its technology stack, SoFi aims to position itself as the Amazon Web Services (AWS) of fintech. The evolution of SoFi's technology platform adds another layer to the business and offers stability through long-term contracts. In the first three quarters of this year, the technology platform generated a net revenue of $263 million, a solid 11% increase from the previous year.
What's next for SoFi?
SoFi projects strong growth for 2024, with its adjusted net revenue of $2.5 billion on the high end, representing 23% growth year over year. This is up from its original forecast, which called for 16% growth on the high end.
SoFi has a few levers for growth and continues to be a big-time lender. On Oct. 14, the company announced a $2 billion loan platform business agreement for personal loans in partnership with funds managed by Fortress Investment Group. This agreement is a crucial step for SoFi as it aims to diversify its revenue streams toward less capital-intensive and more fee-based sources, as highlighted by Chief Executive Officer Anthony Noto.
This also illustrates a potential shift in investor sentiment, suggesting that confidence in SoFi's loan quality is rebounding amid previous concerns about rising charge-offs.
Is SoFi a millionaire-maker stock?
If you invested $10,000 at the beginning of 2023, that position would be worth $33,770 today. If you were to continue holding that investment, SoFi would have to return 40% annually over the next decade to grow to $1 million.
SoFi would have to achieve lofty returns, and even so, its millionaire-maker ability depends on how much capital you put into the stock. While a larger investment could grow into a million-dollar position, you must be mindful of the risk. Relying on a single stock for substantial gains is extremely risky as things may not always work out as you hoped.
What's important is the habit of consistently saving and building up your investment account over time. Maintain a long-term approach and focus on building a diversified portfolio that includes a variety of investments with unique characteristics -- of which SoFi can be a small piece.
