SoFi Technologies

SoFi reported strong second-quarter earnings as the firm's impressive loan growth was marred only slightly by its updated guidance. Net revenue increased a meteoric 42.5% from last year to $1.2 billion, while earnings per share rose to $0.12 from $0.08.

The bottom line: SoFi's shares are trading sharply lower, though, falling by a high-single-digit percentage on July 29. We think the market's reaction is wrong, as the bank's results were better than we expected, thanks to net interest income growth coming in above our projections. We think the market's reaction can be largely attributed to another quarter of stagnant loan platform volume, with revenue from the business increasing only 10.6% from last year, disappointing relative to SoFi's 2026 guidance. Similar to last quarter, we are largely unconcerned with the deceleration in SoFi's loan platform segment. Our model has always included a significant deceleration from the firm's fourth-quarter 2025 results, due to our concerns about private credit exposure and the firm's ample undeployed capital.

Key stats: As we incorporate these results, we are increasing our fair value estimate for narrow-moat SoFi to $17.50 per share from $17. After the shares' miserable performance in 2026, we think they are modestly undervalued, with the market overcorrecting from the significant premium the shares used to command. The increase in our fair value estimate comes mainly from higher net interest income projections, as the firm's loan growth has accelerated significantly in 2026. Average loans rose a meteoric 49.6% from last year to $45.4 billion.

Key stats: Along with earnings, SoFi raised its 2026 adjusted revenue guidance to $4.75 billion-$4.85 billion. Notably, SoFi did not change its EBITDA or its net income guidance with the increase in expected revenue. While this is disappointing and has likely contributed to the share's performance today, we note that SoFi has a long history of conservative guidance.

SoFi's loan platform segment, where SoFi sells excess loans directly to third-party investors, has been a major source of both excitement and concern for the market. During 2025, the segment delivered runaway growth, with full-year revenue rising more than 400% from 2024 to over $575 million.

From a valuation perspective, this revenue is particularly attractive, as it allows SoFi to take full advantage of its marketing channel without making use of its balance sheet, allowing for growth that is unrestrained by bank reserve requirements.

However, a major source of demand for SoFi's loans has been the private credit industry, with Blue Owl being one of its largest partners. This has made the market highly sensitive to any signs of weakness in the segment, which was the case in the first two quarters of 2026, with the volume of loans being sold decreasing from the peak.

While we were always skeptical about the longevity of the dramatic growth SoFi was enjoying from its loan platform segment, we do think the market is overreacting at this point.

SoFi raised significant amounts of additional capital in 2025 through two separate equity issuances, which it needs to deploy by retaining the loans it makes, instead of selling them. While we acknowledge there is less raw growth and earnings potential, we prefer this approach for SoFi, as building its own loan portfolio is a far more reliable way to drive long-term growth.

External demand for its loans is fundamentally driven by capital market conditions and subject to shifts in market conditions.

On a more favorable note, SoFi's credit quality improved sequentially, with its adjusted charge-off rate on personal loans falling to 3.7% from 4.4% last quarter and 4.5% last year. Consumer lenders typically see seasonally higher credit losses in the first quarter, but this level of sequential decrease is encouraging. Broadly speaking, consumer credit quality has been surprisingly strong industrywide so far in 2026, and SoFi has not been an exception.

We are increasing our fair value estimate for SoFi to $17.80 per share from $17.50. The increase comes primarily from lower credit cost expectations for 2026 and 2027 as the US labor market has proven more resilient than expected in 2026. Our fair value estimate translates to a 2026 price/earnings ratio of 28.6 times.

Our model now projects that a combination of lower volume and weaker pricing will reduce loan platform revenue by 25% from the fourth quarter 2025 run rate by 2027. Alternative asset managers like Blue Owl were major sources of demand for SoFi's loans in 2025, and it remains to be seen whether that demand will persist, given investor pressure on these companies. If these contracts are not renewed, SoFi will need other sources of demand or simply do less volume through this channel.

We expect SoFi to benefit from rising student loan origination in 2026, following the end of student loan forbearance. Lower interest rates will contribute to this trend, as SoFi's student loan business focuses on refinancing and is a direct beneficiary of falling rates. Additionally, there is significant upside potential for SoFi's mortgage lending if mortgage rates fall further.

We expect SoFi to continue to enjoy strong growth in its financial services segment, as it benefits from accelerating customer and revenue growth, driven by expansions in its product lineup and consumers' increasing comfort with digital banking. While still smaller than SoFi's lending arm, with multiple opportunities to continue driving monetization, we see SoFi's financial services segment as becoming a more material driver of returns over time.

We project that revenue will increase at a 20.2% compound annual rate over the next five years as the company benefits from its unique product offering. While this growth comes at the cost of aggressive marketing and reward spending, SoFi has increased its focus on its cost structure, and we expect its operating margin to expand steadily over time.

Additionally, we expect SoFi to benefit from cost advantages, as it can passively cross-sell a wide variety of products to its clients through its mobile app and website, reducing its acquisition costs. As growth eventually decelerates, we also expect SoFi to scale back its aggressive marketing and rewards spending programs, leading to further margin expansion. As a result, we expect the firm's operating margin to reach 35.7% by 2025, in line with other strong unsecured consumer lenders.

In our view, SoFi has a narrow economic moat, reflecting our belief that it has durable competitive advantages that will enable it to earn returns on equity in excess of its cost of equity. The company enjoys a meaningful cost advantage thanks to its fully digital banking model— which allows it to avoid the costs of maintaining a physical branch network—and a high-quality deposit base. Additionally, unlike other digital banks, which typically focus on a limited number of loan categories, SoFi operates as a one-stop shop for its users’ financial needs and is steadily expanding its array of financial products. This significantly increases the firm’s ability to build switching costs into its business model relative to its closest peers.

We typically see cost advantages for banks stemming from at least one of three primary factors: excellent operating efficiency, a low-cost deposit base, or superior underwriting. Digital banks typically enjoy leaner cost structures than traditional banks, as they avoid the costs associated with expansive branch networks. However, SoFi is still a growth-stage company and is investing aggressively in its business, with marketing and product development spending at about 30% and 18% of revenue, respectively, in 2025. As a result, the firm’s operating margin and efficiency ratio remain worse than those of most of its banking rivals. However, as the firm has grown, it has seen steady operating margin expansion as it gains scale on its fixed costs and investment spending grows more slowly than revenue, which we expect to continue. Additionally, while we expect SoFi’s heavy marketing spending to decelerate over time, its strategy has been justified by the consistent returns the bank has seen on those dollars.

Moreover, unlike other digital banks, which typically offer only a small selection of products and services, SoFi offers a wide variety of products and services that it markets to a captive audience of existing users through its mobile app. This model allows SoFi to benefit from cross-selling opportunities, which come with a lower cost of acquisition than entirely new business. SoFi then uses this advantage to drive faster growth by offering better rates and terms to its users. For example, SoFi offers interest rate discounts on its personal and student loans to users who have an active deposit relationship with the bank. This strategy has allowed the firm to rapidly take market share.

The firm has further monetized its growing user base by signing loan sell-through agreements with third-party investors, allowing the bank to make more loans than its balance sheet could support and to generate revenue from loan applications that do not meet its credit targets. As the firm reaches maturity, we expect it to reduce the intensity of its investment spending and gain further scale against its fixed costs, leading to considerable margin expansion. We project SoFi's efficiency ratio eventually falling into the low 50s, roughly in line with other major digital banks but better than traditional banks, as its cross-selling advantages offset the higher costs associated with a less-focused product offering.

SoFi’s most significant strength comes from its high-quality deposit base, which it has built in a surprisingly short period of time. Notably, SoFi has maintained accelerated deposit growth while keeping deposit rates under control, with its deposit costs among the lowest in our consumer finance coverage. This success has been driven by SoFi’s strategy of increasing switching costs in its deposit base.

For a SoFi user to receive the full deposit rate available to them, they need to have an eligible direct deposit set up with their account or subscribe to SoFi’s paid monthly membership program. Implicitly, SoFi’s goal with this system is to force its users to use the bank as their primary account, with both their income and expenses flowing through it, thereby establishing a deeper connection with the firm. SoFi has found remarkable success with this approach, as the bank has rapidly established a large deposit base that exhibits less yield sensitivity than its immediate peers. In only a few years, SoFi has gone from offering deposit rates well above the industry average to now being at or below the typical market rate for a high-yield savings account. This has caused SoFi’s total cost of funds to go from the highest in our consumer finance coverage to the lowest in fewer than five years.

While we generally do not view switching costs as a component of consumer finance bank moats, we do think they apply to SoFi. Most consumer finance banks have product offerings that are too limited for a customer to realistically build their finances around, and there is generally no interaction between their product lines. Banking relationships based on a single product are inherently easy to move, particularly if the product has a specified end date, like a loan. SoFi takes a different approach and actively pushes for deeper engagement across its products. As the firm continues to build out its credit card, mortgage, and investment products, we expect the number of products per member to climb over time, pulling its users deeper into its ecosystem.

We expect SoFi to comfortably outearn its cost of equity once its business matures and its investment intensity declines. The firm’s unique model for digital banking allows it to rapidly gain market share in both deposits and lending, as it benefits from the lean operating model inherent in digital banks, cross-selling opportunities across its user base, and switching costs not typically seen among consumer finance banks. While the company is currently underearning its cost of equity, we see a reliable path for the firm to achieve higher returns on equity, which we expect to stabilize in the mid-teens as the firm matures.

SoFi's loan platform business saw massive growth in 2025. Demand for SoFi's loans could prove more resilient than expected in the face private credit fears, providing upside to our projections.

Credit results for SoFi's nascent credit card business improved drastically in 2025. This could enable more aggressive growth for the product than anticipated.

A reduced federal presence in the student loan market could significantly increase the total addressable market for SoFi's student loan business.

Revenue growth has come at the cost of rapid growth in expenses. SoFi could struggle to expand its operating margins without sacrificing growth.

SoFi’s expanding balance sheet has increased its exposure to consumer credit risk. Credit costs could spike during a period of elevated charge-offs and delinquencies.

SoFi's lending segment will be more reliant on investor demand for its loans to maintain growth going forward, exposing the firm to shifts in capital market conditions.