Are SoFi’s guidance for 2022 really that solid?

Shares of SoFi (NASDAQ: SOFI) have been volatile since the recent release of fourth quarter results for 2021. The stock soared about 18% in after-hours trading immediately after the earnings report, but later gave up those gains on some mixed reviews from analysts and some market volatility due to the turmoil amid Russia’s invasion of Ukraine.

While I thought SoFi was having a good quarter, I went back and forth on the guidance provided by SoFi. On the one hand, it’s higher than analysts had originally expected, but it’s also lumpy, and there’s a lot of new stuff happening at SoFi. Is SoFi’s outlook for 2022 really that strong? We’ll take a look.

Review guidelines

SoFi ended 2021 strong with adjusted net income; adjusted earnings before interest, taxes, depreciation and amortization (EBITDA); and EBITDA margins, all at the upper end of management’s prior projections for the year. Here is the guidance given by management for the first quarter of this year and for the whole of 2022.

Advice Q1 2022 (millions) Annual increase Full year 2022 Annual increase
Adjusted revenue $280-$285 30%-32% $1.57 billion 55%
Adjusted EBITDA $0 to $5 0-2% $180 million 500%

Source: Company Earnings Documents

Projections suggest significant growth, with revenue up 55% and Adjusted EBITDA up 500% from 2021. However, given the first quarter guidance, it is clear that the bulk of revenue and EBITDA should arrive later this year. (I’ll explain why management assumes this later.) The forecast is undoubtedly impressive, but the market has already priced SoFi to reflect much of that growth.

SOFI PS Ratio (forward) data by YCharts.

Based on earnings, SoFi may seem cheap, but earnings multiples are no longer as relevant in this type of market, especially with many investors thinking there could be a recession later this year. SoFi has a very high estimated value-to-EBITDA ratio, and because SoFi is also now a bank, investors can also examine it on a tangible price-to-book basis, which reflects a bank’s market capitalization relative to its net value. . Innovative banks can certainly trade above 300% of tangible book value, but this is at the high end of the industry.

Person in the office looking intently at the computer.

Image source: Getty Images.

What about orientation?

Before earnings, analysts on average expected SoFi to generate around $1.45 billion in revenue and $157 million in EBITDA in 2022, so forecasts for this year have certainly exceeded expectations, but many Much has also changed in recent months.

For one, SoFi received its long-awaited banking charter approval in late January, and then SoFi completed its acquisition of Golden Pacific Bancorp shortly thereafter. A bank charter allows SoFi to use cheap deposits to fund its loans and issue loans from within the bank instead of using a third party and having to share revenue; Additionally, it will create a better framework for holding loans on its balance sheet and earning interest income on them.

Additionally, shortly before its earnings report, SoFi announced plans to acquire core processing company Technisys for $1.1 billion, a deal it expects to complete in the second quarter of this year. . SoFi also just announced record growth in membership and revenue in the fourth quarter and plans to roll out other new features, like options trading on its online brokerage, which could also generate handsome revenue. Considering all of this, I might have thought that the predictions for 2022 might be even stronger. Let’s take a look back at SoFi’s first-ever investor presentation in January 2021 and the outlook provided by the company.

SoFi Adjusted EBITDA Forecast.

Image source: SoFi investor presentation, January 2021.

This presentation was made over a year ago, and by now investors should probably have learned not to trust the immediate projections of companies going public through special purpose acquisition companies (SPACs). , as Sofi did in the first quarter of 2021. But as you can see, SoFi originally projected to earn $447 million in EBITDA in 2022 with charter banking. I’d also note that the revenue projected in that presentation was $1.5 billion in 2022, so SoFi is consistent on that one. But I guess my question would be, given that management expected the bank charter to increase EBITDA so much in 2022, why does it feel like it has a much lower impact now?

There have been a few issues beyond SoFi’s control, namely the student loan moratorium, which has now been in effect since March 2020 and is set to expire in May. SoFi estimates that with the moratorium expiring on January 31 as originally planned, the company would generate an additional $30-35 million in revenue and an additional $20-25 million in EBITDA in the first quarter. CFO Chris LaPointe, on SoFi’s recent earnings call, also said the company likely won’t start taking loans from the bank until late May, which is why management expects revenue and EBITDA increase later this year. Non-interest expenses also increased by around 64% in 2021 and may continue to increase this year as well.

Is the guidance strong?

I’m sure there are different interpretations, but I feel like the advice here is a bit light. Again, in recent months, SoFi secured the banking charter, purchased Technisys, added new capacity, and also just saw record growth in new members in a strong fourth quarter. Now, it’s possible that management will remain conservative, especially given how quickly inflation has come on, the difference in the monetary picture, and how all of this could weigh on consumer demand. But even after seeing a significant decline in its share price over the past few months, SoFi is still trading at fairly high multiples, so it must continue to grow rapidly to support that valuation.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.