Shares of the financial technology company SoFi (NASDAQ:SOFI) closed over 28% higher following its stellar Q2 performance. What stands out is management’s upbeat outlook amid a challenging operating environment, which indicates that the momentum in its business may continue, so now could be a good time to buy SOFI stock.
SoFi’s Strong Q2 Drove its Stock Higher
SoFi’s Q2 performance had multiple positives, which were enough to fuel the recovery in its stock. For context, its adjusted revenue of $356 million jumped 50% year-over-year and surpassed its previous guidance range of $330 – $340 million. Further, its adjusted EBITDA of $20 million soared 81% from the prior year and exceeded its forecast of $5 – $15 million.
SoFi’s strong Q2 performance came amid the ongoing headwinds from the extension of the student loan moratorium and a weak macro environment impacting consumer demand.
Its Q2 financials benefitted from robust growth in members and products. It added about 450,000 new members in Q2 (the second-highest member growth quarter). Moreover, it added over 702,000 new products.
In response to SoFi’s Q2 performance, Mizuho Securities analyst Dan Dolev stated that the “Key highlights include yet again over 20% Q/Q Personal Loan growth, higher average FICO score, muted delinquencies and a Q/Q acceleration in both products and member numbers.”
It’s worth mentioning that SoFi’s personal loan originations were up 91% year-over-year and more than doubled from the pre-COVID levels. Further, its credit performance remained strong, with delinquency and charge-off rates remaining 50% below pre-COVID levels.
Momentum to Sustain for SoFi
Management’s upbeat commentary during the Q2 conference call implies that the strong growth for SoFi will likely be sustained in 2H22. SoFi raised its full the year revenue and adjusted its EBITDA outlook.
SoFi projects full-year adjusted net revenue in the range of $1.508-1.513 billion, up from its previous guidance of $1.505-1.510 billion. Further, it expects to deliver an adjusted EBITDA of $104-109 million, compared to its earlier forecast of $100-105 million.
Key Takeaways
SoFi’s products and members growth, momentum in the personal loan business, solid credit performance, and reduction in the cost of capital following the approval of the bank charter position it well to deliver stellar financials, which in turn, will likely support its stock. However, the macro headwinds impacting consumer demand like inflation and high-interest rates, and challenges related to student loans could play spoilsport.
SoFi stock has received six Buy and five Hold recommendations for a Moderate Buy rating consensus. Moreover, analysts’ average price target of $9.23 implies 12.2% upside potential.
While analysts are cautiously optimistic about SoFi, it has a negative signal from hedge fund managers, who have lowered their holdings in the last three months. Overall, SoFi has a Neutral Smart Score of 6 out of 10.
