Sofi Technologies : The Future of Finance ( Part 3)

In the first two parts of my article on Sofi Technologies, I discussed their banking charter and their various different business segments. This final part will cover their finances. 

This article will first look at segment level financials and then the broader company.

Lending:

Lending is by far the largest individual segment for the company with segment level revenue of $422 Million as of Q4 2024. The importance of the banking charter can be seen here almost immediately as Sofi has a net interest margin of 5.91%. This means the interest rate they receive on average for their loans is 5.91% greater than the interest rate they pay on deposits. Sofi has control over their own deposit offerings which allows Sofi to adjust it according to their business needs as can be seen with the gradual lowering of saving rates from 4.6% to 3.8%. 

This flexibility showed in their contribution profit for the segment which reached a record high of $245 Million. Contribution profit can be considered as the profit after considering all of the costs directly attributable to the segment. The $245 Million represents a contribution profit margin of over 50% which is slightly below their long run target of an around 60% margin.

Future Tailwinds : 

With recent reductions in interest rates, Sofi has started selling loans on its balance sheet which allows Sofi to cycle their loan book and generate revenue faster and operate within their capital ratios creating a tailwind for overall company growth.

Financial Services:

Financial Services is the second segment by size and the fastest by growth. Financial Services delivered segment level revenue of $256 Million which was up from $139 Million in revenue for the same period in 2023. This represents astounding growth of over 20% from 2023 levels for the segment. What is even more impressive is the change in segment level contribution profit for the segment. The segment first went contribution profit positive in Q3 2023 at around $3 Million in contribution profit. In Q4 2024, the segment reported contribution profit of over $100 Million showing remarkable growth in the segment. The contribution profit margin for the segment is currently around 40%. The primary drivers of growth in this segment is Sofi Money which has been growing very consistently and the loan platform business which had its debut in Q3 2024 and generated around $50 Million in additional revenue for Sofi in each of its first two quarters. 

Future Tailwinds : 

The loan platform business is still new so the potential for new deals and larger deals is immense. Sofi has commented that they are getting prepared to sign a large deal with a multi billion dollar investment fund through the loan platform business. Sofi is also planning on investing heavily into its credit card and investment platforms to make their net contribution profitable.

Technology Platform : 

This is Sofi’s smallest platform and also their slowest growing. This segment reported segment level financials of $102 Million in revenue and $32 Million in contribution profit. This segment of their business is struggling mostly due to very long proof of concept phases with large institutions and interest rate uncertainty in the US. Sofi expects this segment to grow around 15% in 2025 and then accelerate in 2026 when they expect most of the deals to be signed. Overall, this segment of the business is the only part of the business where Sofi hasn’t hit their expectations and continues to struggle. The upside is that this is the smallest segment making less than 20% of the company's net revenue so if any segment had to struggle, investors would prefer this one over any of the others. 

Future Tailwinds: 

Sofi has been in a proof of concept phase with a Top 5 US financial institution and they are expecting to land the deal alongside fully integrating other deals in 2025 which would provide a major boost to revenue in 2026.

Adjusted Net Revenue : Company

Sofi reported adjusted net revenue of $739 Million in Q4 2024. The reason this is adjusted net revenue is because it accounts for corporate revenue which is net $43 Million negative for Sofi. 

Sofi has shown remarkable growth in fiscal year 2024 with approximately $2.6 Billion in revenue up from $2.1 Billion in fiscal year 2023. The company has guided for 26% revenue growth in 2025 with a heavy focus on reinvesting into the business. Sofi historically has beaten their growth estimates very consistently especially for revenue so the revenue numbers are more likely to come around 30% growth.

GAAP Net Income

Sofi reported adjusted GAAP net income of 5 cents per share. This adjustment excludes a 270 Million Tax benefit Sofi received in Q4. Full year net income was 15 cents marking Sofi’s first full calendar year as a net income positive company. Sofi expects 27 cents of earnings per share in 2025 due to the previously mentioned heavy reinvestment. However, Sofi reinforced its long term guidance of 55-80 cents per share which means the company believes it's on track to deliver on its previously stated goals. 

Sofi is one of the fastest growing banks in the US with one of the best management teams with some of the best macroeconomic conditions in front of it making it a heavy favourite to become the future of finance.