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SoFi Technologies Stock: Buy, Sell, or Hold?

SoFi Technologies (SOFI -0.58%) has had a tough go of it since going public in late 2020. Although the fintech has achieved solid top-line growth for several years, the stock price is down 75% from its all-time high, and today, it sits 42% below its 52-week high.

The company has diversified its business over the past several years, and its growth provides investors with reasons to feel bullish about its long-term growth prospects. However, investors must also consider the macroeconomic backdrop and ongoing changes to its business amid its transitional year. If you own or are thinking of investing in SoFi stock, you’ll want to consider the following.

Reasons to buy or hold SoFi stock

When SoFi first started, it was laser-focused on helping people refinance and consolidate their student loan debt. Over the years, SoFi has expanded its service offerings beyond student loans into personal lending, banking, and providing solutions for financial technology companies.

Its push into banking has made SoFi a fast-growing financial platform. In 2022, SoFi acquired Golden Pacific Bancorp for $22.3 million. The acquisition provided SoFi with a banking charter, which allows it to collect deposits that provide a funding base to hold more loans on its books and capitalize on higher interest rates.

Over the last year, SoFi’s deposit base has more than doubled to $21.6 billion. The company has enticed people to its SoFi Money product thanks to an annual percentage yield of 4.6%. Since the fourth quarter, its deposit base has grown 16%, with 90% of SoFi Money deposits coming from direct deposit members.

Strong deposit growth has helped SoFi’s first-quarter financial services segment revenue grow 86% year over year to $150 million, and a $24 million net loss last year swung to a $37 million profit this year. SoFi expects this segment to grow 75% during the year.

Another growth driver is SoFi’s technology platform segment, which provides banking-as-a-service to fintechs and neobanks. The company invested heavily in this segment, acquiring Galileo and Technisys, enabling it to provide back-end banking infrastructure that powers operations for non-bank clients. With this technology stack, SoFi hopes to become the “Amazon Web Services (AWS) of fintech.”

In the first quarter, SoFi’s technology platform segment revenue grew 21% to $94 million, while its contribution profit more than doubled to $30 million. The company projects this segment’s revenue to grow 20% in 2024.

Reasons to sell SoFi stock

As part of SoFi’s pivot a few years ago, the company significantly increased its personal lending business. Since 2020, SoFi’s personal loan originations have gone from $2.6 billion to $13.8 billion. This has some worried about the company’s credit quality, especially if consumers show signs of weakness.

At the end of Q1, SoFi had a $15.6 billion personal loan portfolio. It charged off $134 million in loans in the quarter, giving it a net charge-off ratio of 3.45%. That ratio is up from 2.97% in the same period last year. There are concerns that ongoing consumer weakness could weigh on SoFi’s loan book and lead to a revaluation of loans if losses continue rising, ultimately bringing down its bottom line.

Another concern investors may have about SoFi is that 2024 is a “transition year” for the business. While lending is a big part of the business, it is becoming less significant to its overall growth story.

SoFi’s lending segment revenue fell 2% year over year in the first quarter, and it projects this segment’s full-year revenue will fall 5% to 8% compared with last year. One reason for the decline is the company taking “a more conservative approach in light of macroeconomic uncertainty,” according to CEO Anthony Noto.

Is SoFi stock right for you?

SoFi declared this a transition year, meaning more uncertainty and volatility as its story plays out. If you are a conservative investor or your investing time horizon is short, you probably wouldn’t want to touch SoFi stock.

With that said, SoFi is a fast-growing company that is still relatively young. It is quickly growing its deposit base and increasing its technology platform revenue, which could be crucial to its long-term growth. Its impressive growth is hard to ignore, and at a price-to-sales ratio of 3, I think SoFi could be an excellent investment for patient investors with a long time horizon.

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