SoFi Technologies (SOFI) stock closed Monday 20% higher after reporting a fourth-quarter earnings beat, its first-ever quarterly profit. Dominick Gabriele, Oppenheimer Executive Director and Senior Analyst of Equity Research, breaks down SoFi's revenue streams and outlook for continued profitability.
"The fact that this quarter had a 30% margin is really kind of a long-term goal that they've already achieved in this quarter. And the guidance is obviously for continued 30% roughly margins here," Gabriele tells Yahoo Finance.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
- Shares of SoFi are surging almost 20% after reporting the company's first ever profit in the fourth quarter. Revenue also beating Wall Street's expectations, soaring by more than a third during the period. Joining us now to discuss the quarter, Dominicl Gabriele, Oppenheimer Executive Director and Senior Analyst of Equity Research. Thanks for being here. So what's going on here at SoFi? It looks like it has sort of changed its business mix, kind of leaning more on financial services, less on strictly loans. Is that what's kind of unlocked this profitability for them?
DOMINICK GABRIELE: Well, thank you so much for having me. You know, I think people are surprised that they have the earnings power and the diversity of revenue that they really do. And we've been saying this for quite some time that it's the diversity of that the revenue streams that they've built out that are creating this ability to kind of supercharge some of these-- some of these segments.
I mean, the financial institution-- the financial technology segment, you know, obviously, both of those are just expected to have over 50% growth in 2024. Literally, there's a lot going right at SoFi right now, even when they decide themselves to pull back on some of the loan originations.
JOSH LIPTON: And, Dominick, how confident are you here that we're going to keep seeing this ramping profitability in the quarters and ahead? And if so, how come?
DOMINICK GABRIELE: Sure, sure. So we've had in our model for quite some time-- and it's a great question. And it's a critical one, because we've had in our model for quite some time that they were going to continue to have adjusted EBITDA margins improving over time. The fact that this quarter had a 30% margin is really kind of the long-term goal that they've already achieved in this quarter. And the guidance is obviously for continued 30% roughly margins here.
And it's really important that companies that came out in SPACs and the like hold to their focus and their targets that they've laid out at the beginning or have even updated but really deliver on some of these targets. And SoFi is one of them that I believe continues to deliver on their expectations.
JULIE HYMAN: So, Dominic, I noticed you have, if I'm not mistaken, a market perform on the stock. What are you waiting to see from SoFi that would tell you, OK, it's time to get in here?
DOMINICK GABRIELE: Yeah. I think, you know, we have consistently talked about an amazing buying opportunity when SoFi approaches $7. We've talked about becoming less bullish when it hits about 10. We've played that range multiple times. It's allowed us to do that.
You know, the thing that matters, is this profitability improvement enough to break this trading range? And we think the fundamentals are obviously improving. Is the overall climate enough where they can break through? And you know, I have to admit this report is based on GDP contraction in 2024, which means it's probably at the low end of where the deliver. And it leaves-- and, you know, probably would leave room for upside.
JOSH LIPTON: And, Dominick, I'm also interested to get your take on how you judge valuation for this name? Nice-- I mean, big pop today, obviously. It's now up about 40%, Dominick, over the past 12 months. How does valuation look to you for SoFi?
DOMINICK GABRIELE: Yeah. It's another really important point for SoFi in particular, because we use some of the parts analysis. And I think it's pretty critical for this stock-- and I actually hate some of the parts, because it doesn't usually work. But for SoFi, it feels like it's the right call because they do have this pretty significant technology business. Otherwise, the rest of it is really a specialty finance company.
But especially when you're growing this technology business, 25%, 20%, it can really determine-- even though it's not a lot of revenue, it can really swing that multiple around. And we've said this for a long time since we started covering the stock. And so I really think of some of the parts analysis is the right way to go versus just tangible book value that would miss all the earnings that this technology business provides. And so that's why we think it's important to use some of the parts. And it comes to that range of roughly $7 to $10.
JOSH LIPTON: And, Dominick, I want to get you out of here on this, obviously, the company backwards and forwards. You know the C-suite really well, Anthony Noto, so I want to get your take on Noto. You know, he's a former Goldman banker, executive at X. He was named CEO of this company almost exactly six years ago, Dominick. What grades do you give Noto?
DOMINICK GABRIELE: Look, I haven't talked to him quite a few times. We've hosted them for different events. I think he's a really clear deliverer. And all that I care about, honestly, is his execution. And he continues to do that. And I think he's-- they have a lot of scrutiny sometimes because of the way they do some of the accounting and whatnot, because people aren't used to fair value accounting.
But I think that he should get high marks on his ability to execute the dream of this company. And you're seeing it in some of these numbers time and time again and in different market environments, right? I mean, that's what he's doing. He's creating a overall well-rounded financial institution. And I think you should get high marks for that.
JOSH LIPTON: Dominick, it was great having you on the show today. Thanks so much for your time and your insight. We appreciate it.
DOMINICK GABRIELE: Thank you so much for having me.