SoFi Earnings Preview: 1 Key Milestone and 1 Big Risk

Plus the latest on Virgin Galactic, the BLI Premium Portfolio, and Masterworks.

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🏆SoFi Earnings Preview: 1 Key Milestone and 1 Big Risk

Wall Street pundits often say earnings season hasn’t truly begun until the nation’s biggest banks kick things off each quarter.

But in keeping with our goal of finding the best stocks and startups early in their growth stories, I much prefer drawing the starting line with one of the country’s biggest financial institutions in the making.

SoFi Technologies (NASDAQ: SOFI) is set to release fourth-quarter 2023 results on Monday before the market opens. And make no mistake: This quarter could prove to be a watershed moment for the banking and fintech leader.

A huge milestone for SoFi…

Last quarter marked the first time in SoFi’s history that each of its three core business segments (lending, financial services, and the technology platform business) individually posted a positive quarterly contribution profit — though the company as a whole has still yet to deliver its first net profit based on generally accepted accounting principles (GAAP).

That’s about to change on Monday: SoFi’s latest guidance calls for the company to inflect to positive GAAP net income for the first time ever in Q4, as its economies of scale and operating leverage begin to take hold.

Will the market reward SoFi for delivering something management has repeatedly predicted? Not necessarily. SoFi stock has made a habit over the past few quarters of giving up its brief post-earnings pops after repeatedly trouncing Wall Street’s expectations.

But I do believe it’s becoming increasingly difficult for Wall Street to ignore SoFi’s relative strength. And when the stock eventually breaks out, I think the move could come in the form of a violent, jaw-dropping rally that catches nearly everyone off guard.

…but also a significant risk

At the same time, you might recall Sofi shares pulled back hard earlier this month after one Wall Street analyst expressed concerns over a combination of SoFi’s valuation and the impending risk that multiple rate cuts from the Fed later this year could negatively impact its profitability — the latter specifically as it pertains to any resulting mark-to-market losses recognized through revaluations of SoFi’s $21 billion+ held-for-sale loan portfolio.

I subsequently went out on the limb to publicly argue that this particular analyst’s call was off base. But I do think there exists a bit of a wild-card risk in that — however unfounded — SoFi management may need to appease Wall Street’s overarching concerns over its fair-value accounting when it comes to that massive loan portfolio.

If they haven’t tactfully addressed the topic by the time the central begins lowering its federal funds rate in the coming months, that could serve as yet another talking point for skeptics who doubt the ability of SoFi CEO Anthony Noto to deliver on his longstanding goal of building SoFi into a top-10 financial institution in the U.S.

đź—ž THE BOTTOM LINE

  • SoFi is poised to deliver its first-ever GAAP net profit with its Q4 report on Monday morning. But I’ll also be looking for management to address Wall Street’s looming concerns over the impact of interest rates on its profitability, specifically as it pertains to mark-to-market adjustments to its sizable loan portfolio as the federal funds rate begins to fall this year. Either way, it should provide an exciting “start” to what I consider earnings season here at Bottom Line Investing on Monday.

đź“ť QUICK BITES

  • Virgin Galactic Takes Flight: Virgin Galactic successfully completed its first commercial flight of 2024 on Friday, dubbed “Galactic 06.” The flight marked Virgin Galactic’s 11th successful spaceflight, and the first in which all four seats of the VSS Unity spaceship were occupied by private astronauts.

    In case you missed it, yesterday I also co-hosted a livestream discussing the current state of Virgin Galactic with my longtime colleague Travis Hoium. Travis runs the Asymmetric Investing newsletter, attended today’s launch event, and had the opportunity to interview Virgin Galactic CEO Michael Colglazier ahead of Friday’s flight.

  • Weekly BLI Premium performance update: The BLI Premium Portfolio is off and running, up 4% in its first week versus a 1.7% gain for the S&P 500. I expect we’ll see even more wild fluctuations in these early stages as earnings season picks up steam.

  • I want to hear from you! Do you have a stock or startup you think I should consider for our BLI Watchlist? Questions about the recently launched BLI Premium Portfolio? A CEO you’d like me to interview?

    Let me know! Just respond to this email with your request and I’ll be happy to take it into consideration as we plan our coverage and content schedule for 2024.

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