Shares of fintech companies Sophie Technology (SOFI -0.84%) Market value fell 10% in November, according to S&P Global Market Intelligence. The company has been facing many challenges this year related to the economic downturn, which were reflected in its third-quarter earnings report on Nov. 17. 1.
SoFi went public exactly two years ago, becoming one of the few fintech stocks to catch investors’ attention and skyrocket. But if the unprofitable growth stock falls out of favor in 2022, it’s going to have a tough year, with its shares down 70% in 2022.
The company offers a variety of financial services on its digital app, aiming to be a one-stop shop, providing customers with an easier and better overall experience in managing money. Its largest business by far has been student loans, but it has expanded its offerings to include banking, investing and more.
This has resulted in strong growth. In the third quarter, member accounts exceeded 4.7 million, an increase of 61% year-on-year, and products increased by 69% to 7.2 million. Revenue reached $423 million, a 56% increase over last year.
But despite strong growth, investors were less enthusiastic. Net losses more than doubled to $74 million this year from $30 million last year, and the company’s deeper exposure to banking means it faces greater risk of loan defaults. In the third quarter, SoFi benefited from higher interest rates, higher net interest income from loans, and higher loan volumes.
However, it is being hit by a moratorium on student loans, which the government has extended until June 2023. That means SoFi’s livelihood could continue to take a severe hit in 2023. Student loan volume falls by more than 50% in 2023 Q3. The housing market is also struggling due to rising interest rates, which also impacted SoFi’s loan book in the third quarter. Home loan volumes are down 73% from last year.
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SoFi acquired Golden Pacific Bancorp in February, granting it a banking license and giving it greater flexibility in services and operations. It also acquired cloud banking platform Technisys this year, which will upgrade its systems and provide a better customer experience.
There’s a lot to like here, as well as great potential for growth as the company upgrades, wins customers, and grows revenue. However, it is now dealing with many headaches related to the economy, and it is extending its losses as the economy grows. There’s no rush to buy SoFi, but investors should keep it on their watch list.
Jennifer Saibil has no positions in any of the stocks mentioned above. The Motley Fool has no positions in any of the stocks mentioned above. The Motley Fool has a disclosure policy.