For the first time, SoFi Technologies (NASDAQ:SOFI) added twice as many products as members in a single quarter, according to its second-quarter results. Existing customers, in other words, are coming back for more.
SoFi is an app-based bank and lender. Its 15.8 million members borrow through personal, student, and home loans, and also hold cash, spend on cards, and invest. SoFi earns the spread between what it charges borrowers and pays depositors, plus a growing stream of fees. Whether that milestone marks a more durable business or just a faster-growing lender explains the debate over a forward P/E of 26.52 against a sector figure of 11.
Cheaper Funding and Repeat Customers Feed Each Other
The edge starts with how SoFi pays for its loans. Average deposits made up over 90% of average liabilities in the second quarter, and total deposits ended the period at $45.5 billion. The rate SoFi paid on deposits ran 156 basis points below what it paid on warehouse facilities (short-term credit lines from other lenders), which the company says equals about $712.6 million of annualized interest expense savings.
Cheaper money matters more when customers keep returning. Cross-buy, meaning new products opened by existing members, reached 51% of new products, up from 43% the prior quarter and 35% a year earlier. Each repeat purchase spreads the cost of winning a customer across more products. One fintech rival chases the same everyday-banking customer with a very different model, and this competitor’s growth story shows how.
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Fees and a Stablecoin Test Reach Beyond Lending
The results back up the pattern. Adjusted net revenue rose 40% to $1.2 billion, and GAAP net income climbed 61% to $156.6 million. Fee-based revenue of $472.3 million made up 39% of total revenue, helped by a loan platform business where SoFi originates loans for outside buyers and collects fees rather than holding the risk. The company also reported a Rule of 40 score of 70, which adds the growth rate and profit margin together.
Recent news pushes the story further. SoFi and Mastercard announced that stablecoin settlement is live across SoFi Bank’s card program, moving its entire $25 billion card program onto SoFiUSD, a stablecoin the bank itself issues. SoFi says it’s talking with large merchants about similar arrangements. The weak spot is the Technology Platform segment, where revenue fell 23% from a year earlier, partly because a large client left. Plenty of companies are building similar payments rails, and another approach to stablecoin settlement looks quite different.
Is Lending Still the Whole Story?
The lending segment brought in $724.8 million of net revenue, up 63%, and record originations hit $14.8 billion. Personal loans made up $10.7 billion of that, including $3.1 billion originated for third parties. Meanwhile, the Financial Services segment’s contribution margin slipped to 46% from 52% a year earlier, and adjusted EPS guidance held at about 60 cents even as the revenue outlook rose. Wells Fargo analyst Cassie Chan rates the stock a Hold, citing valuation and earnings exposure to loan sales in a volatile economy, while still calling SoFi a likely long-term winner as technology and finance converge.
Credit data offers some comfort. The personal loan charge-off rate was 2.62%, down from 3.03% in the prior quarter, and recent vintages show net cumulative losses of 4.68% against a 7% to 8% maximum that management tolerates. Still, faster lending means more balance-sheet exposure, which keeps credit as the main risk. Other consumer lenders face the same questions, and this lending peer’s results tell a different story.
A Premium Multiple That Has Come a Long Way Down
At 26.52 times forward earnings, SoFi trades well below its 5-year average of 68.46. Much of that old premium was the market paying for profits that hadn’t arrived. They’re arriving now, with management guiding to adjusted EPS of about 60 cents for the year. GAAP and adjusted diluted EPS were both $0.12 in the second quarter, so the choice between them barely matters.
Against the sector’s 11, though, the multiple still asks for more. Management guides to annual adjusted net revenue growth of 32% to 35%, and the premium holds only if profit keeps pace. The unchanged EPS outlook beside a higher revenue outlook is the detail skeptics short sellers are pointing to.
Short interest stands at 14.63% of the float, which points to meaningful bearish positioning. Hedge fund interest slipped, with 44 funds holding the stock in the most recent quarter, down from 47 in the prior one.
A Defensible Premium, With Credit as the Test
The evidence supports some premium: growth is fast, funding is cheap, and customers are buying more per head. It doesn’t support an unlimited one, since the multiple still sits well above the sector’s. The setup suits investors who are comfortable with consumer-credit risk and a volatile stock, and who care more about growth than sector comparisons. Charge-offs climbing meaningfully from 2.62%, or cross-buy sliding back toward the 35% of a year ago while deposit growth stalls, would weaken the case.
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This article is originally published at Insider Monkey.
