SoFi Technologies (NASDAQ: SOFI) ended 2024 on a high note, delivering a 70% annual gain and outperforming fintech peers like PayPal (NASDAQ: PYPL).
This impressive rebound followed a sluggish start to the year, driven by strong Q3 results, surging membership growth, and a shift toward fee-based revenue streams.
With Q4 earnings scheduled for January 27, 2025, investors are weighing whether SoFi’s recent momentum makes it a buy ahead of its next financial release.
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As of the market close on January 15, 2025, SoFi shares were trading at $15.51, up 6.9% year-to-date. The stock has also posted a modest 0.71% rise on the year-to-date chart, signaling a cautiously optimistic market sentiment.
Key drivers behind SoFi’s growth
SoFi has established itself as a leader in the fintech space thanks to its diversified financial ecosystem.
While its core lending business continues to thrive, the company’s non-lending segments, including its financial services division and Galileo tech platform, have become increasingly significant.
These non-lending segments now account for nearly half of SoFi’s total revenue, a notable jump from 39% a year ago. These segments grew revenue by 64% year-over-year in Q3 2024, highlighting SoFi’s transition to a more capital-light, fee-based business model.
Meanwhile, SoFi’s lending division has also performed exceptionally well, with loan origination volumes increasing by 23% due to rising demand for personal, student, and home loans.
Financial services products grew by 33%, reaching 11.8 million, while revenue from the technology platform climbed 14%, further cementing SoFi’s position as a diversified financial ecosystem.
Expectations for Q4 results
As SoFi gears up to report its Q4 2024 earnings on January 27, analysts project an adjusted EPS of $0.03, compared to $0.02 in the prior-year quarter.
If achieved, this would mark the fintech company’s sixth consecutive quarter of exceeding earnings expectations, reinforcing its track record of operational success.
CEO Anthony Noto described Q3 2024 as ‘The strongest quarter in SoFi’s history,’ emphasizing the company’s focus on high-margin, capital-light revenue streams.
Combined with a lower interest rate backdrop and reduced regulatory pressures, the company’s lending business appears well-positioned for continued growth in Q4 and beyond.
Valuation concerns and analyst outlook
Despite its impressive growth, SoFi’s valuation remains a point of contention. According to StockAnalysis, the company’s price-to-sales (P/S) ratio of 6.27 reflects a premium valuation, signaling strong market optimism.
Meanwhile, its trailing price-to-earnings (P/E) ratio is 130.91 far exceeding the market average.
These elevated metrics suggest that SoFi is priced for perfection, leaving little room for error. While its diversification efforts and revenue growth are commendable, the stock’s valuation could expose it to significant volatility if Q4 results fall short of expectations.
The divergence in analyst sentiment reflects these concerns. Keefe, Bruyette & Woods analyst Timothy Switzer flagged the stock’s overstretched valuation as the primary concern, downgrading it from ‘Market Perform’ to ‘Underperform’ and assigning a “Sell” rating.
Conversely, Citi raised its price target to $18 as part of its fintech sector preview for 2025. The firm highlighted growing investor interest in fintech, driven by a stable macro environment and reduced regulatory challenges.
Similarly, William Blair analyst Andrew Jeffrey echoed this sentiment, initiating coverage with an “Outperform” rating, citing SoFi’s ability to cater to demographics seeking better, more transparent financial experiences.
Is SoFi a buy before earnings?
While SoFi’s long-term growth story is promising, its premium valuation adds an element of risk, particularly for short-term traders. Analysts remain divided, reflecting both the opportunities and challenges facing the company.
For long-term investors, SoFi’s ongoing transformation into a diversified financial ecosystem could make it a worthwhile investment, even as near-term market conditions and high expectations introduce volatility.
Featured image via Shutterstock
