SoFi Technologies: Expanding Beyond Lending

Deutsche Bank highlights the importance for SoFi Technologies to focus on expanding its nonlending businesses in order to establish itself as a dominant player in the banking industry. In a recent report, analyst Mark DeVries suggests that if SoFi wants to become the "Amazon Web Services of banking services," it needs to rekindle the strong growth it experienced in its technology platform prior to 2023.

Initially, SoFi started as a lender specializing in debt refinancing. However, it has now diversified into three main segments: lending (including student, personal, and home loans), financial services, and an advanced technology platform.

Despite the stock's notable performance with a 66% increase over the past year, Deutsche Bank initiated coverage of SoFi with a Hold rating ahead of its upcoming fourth-quarter earnings report. They expressed concerns about the limited visibility regarding the growth of the technology platform, which is crucial for supporting the current valuation.

Even with this rating, SoFi's shares saw a 2.5% rise to $8.53 during Wednesday's trading session. In comparison, the S&P 500 index has observed a 20% increase.

Deutsche Bank identified three key drivers that will shape SoFi's performance this year. Firstly, the growth in technology sales is believed to significantly impact its valuation, given the contrasting margin and valuation profiles between technology and consumer lending businesses. Secondly, account growth is expected to play a vital role. Lastly, the progress made by SoFi towards achieving profitability will also influence its stock's performance.

As SoFi continues its journey towards building a banking powerhouse, expanding its technology platform and diversifying its revenue streams will be paramount. Only by doing so can it truly position itself as a leader in the industry, akin to the likes of Amazon Web Services in the banking sector.

SoFi's Nonlending Segment Poised for Growth

Chief Executive Officer Anthony Noto is optimistic about the nonlending segment, considering it to be the primary driver of growth for SoFi in the upcoming quarter and beyond.

The fintech company will be unveiling its financial results on Jan. 29. Management anticipates reporting its first profit in the fourth quarter, according to generally accepted accounting principles. However, analysts tracked by FactSet predict that SoFi will break even during this period.

Several analysts have recently shared their perspectives on SoFi. BMO Capital Markets analyst James Fotheringham initiated coverage of the stock with a Market Perform rating and a $9 price target. Barclays analysts, led by Terry Ma, maintained an Equal Weight rating, adjusting their financial forecasts while raising their stock price target to $10 from $8.

In recent months, analysts have become increasingly cautious about SoFi. Around two-thirds of them currently rate the shares as Neutral or the equivalent, compared to 45% in July, as reported by FactSet.