Here is My Updated SOFI Investment Thesis

1/ $SoFi Technologies Inc.(SOFI)$ train is taking off.

Growth is accelerating, the business is becoming increasingly capital-light, and it's rapidly entering new markets.

Here is my updated SOFI investment thesis: 🧵

2/ Member growth is accelerating.

SOFI added a mind-blowing 1.8 million members since Q4 2024.

This is the fastest rate at which the company has grown its membership in any two consecutive quarters.

This will result in accelerated product growth in the next few quarters.

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3/ Lending is accelerating too.

This is SOFI's biggest business, and it's accelerating.

In the last quarter, originations reached a record $799 million.

This can further accelerate as the Fed cuts rates and SOFI grows its deposit base.

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4/ Technology business is back to growth.

This business has so much potential, as successful fintechs like Dave and MoneyLion were built on it.

It's now growing again after three quarters of stagnation.

This segment has the potential to easily double the annual run rate to over $1 billion in the next two years.

If this happens, it'll raise SOFI's annual growth rate by 5%, which will result in a significant margin and multiple expansion.

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5/ There are significant cross-selling opportunities ahead.

SOFI product growth closely mimicked member growth since it became public.

Product growth can accelerate further as the management doubles down on cross-sells.

These cross-sells will have way higher margins as the business won't have to pay for the customer acquisition again.

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6/ Charge-off rates are falling off the cliff.

Investors were afraid of SOFI's exposure to unsecured loans for a long time.

SOFI proved them wrong.

Charge-off rates on personal loans have consistently declined since the Fed stopped hiking rates.

Its loans are rock solid.

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7/ Its loans are increasingly funded by deposits.

In the last 3 years, it shifted its source of lending from warehouse capacity to its deposit-based.

This resulted in incremental expansion in the net interest margin.

It's going to expand even further as older warehouse loans are paid.

8/ It's becoming increasingly capital-light.

Most investors saw SOFI as 'just a bank' because of its capital-intensive business.

In the last three years, it shifted away from capital-intensive revenue sources to fee-based ones.

This trend will lead to significant margin and multiple expansion.

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9/ Crypto and international payments are coming.

Anthony Noto said in the last earnings call that crypto and international payments will be launched before the end of the year.

He also hinted that SOFI will start expanding internationally soon, massively expanding its TAM.

10/ Valuation is fair.

The management previously expected 26% annual growth until 2026 and 20% annual growth beyond that until 2030.

They didn't have crypto, a loan platform, or international payments when this forecast was made.

Now that they have these businesses too, I think they can grow 30% annually in the next 2 years and 25% beyond that until 2030.

This will give us nearly $10 billion in revenue in 2030.

Assuming a conservative 25% net margin, we will get $2.5 billion net income.

Assuming 8% annual dilution, we will get 1.6 billion shares, which gives us an EPS of $1.56.

At 25 times exit multiple, we’ll be looking at a $39 per share stock price.

Discount it back to the current time at an annualized rate of 10%, and we’ll get a $24 per share fair value. This is the level the stock tested yesterday.

This means that the market is now fairly valuing SOFI stock, and those who are entering at these levels shouldn’t expect much more than the market returns going forward.

Assuming a 30% margin of safety, my buy price would be below $18 levels.

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