The Consumer Is All Right!

**Travis Hoium** (0:02)
Earning season is in full swing, and Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium. Joined today by Lou Whiteman and Rachel Warren. And guys, we've got earnings on the mind today. We're going to get to four different earnings reports, at least touch on them. Lou, the first one that I wanted to get your thoughts on is one that I'm sure a lot of fools have in their portfolio, or at least their watch list. That is SoFi. The numbers looked pretty impressive. Total revenue was up 43%. Net income was up 61%. And yet, the stock is down almost 10% today.

**Lou Whiteman** (0:37)
Yeah, I think the stock is acting rational. And again, I know I get a lot of hate for this.

**Travis Hoium** (0:42)
But, you know, you just don't like growth, Lou, let's be honest.

**Lou Whiteman** (0:48)
I like growth. It's just the question of what you're paying for growth.
You know, one thing we learned from that short report, and I think it's important. The short report was mostly just nonsense. But one thing that I think it did highlight is SoFi loves to use marks to market and other adjustments to create non-GAAP earnings. That's fine. They disclose it. Again, the short report was overstated. But it makes apples to apples comparisons to other banks very, very deceptive. And I think flatters SoFi in a lot of ways. On a GAAP basis, SoFi is trading at 40 times earnings. The average bank trades at 10 to 15 times earnings. I can find you really good ones right now, where the dividend yield is at 4 percent or so, and they're on the lower end of that 10 to 15 percent. So the question is, yes, SoFi is growing faster than these banks. And I think they can justify a premium valuation based on that growth. But I don't think the market is wrong in saying, it ain't 40 times earnings, which, you know, and we can go deeper into it if you want.
But I think for all SoFi tries to say it is, SoFi is a bank and it should be judged as a bank. It's a fast growing bank. So give it a premium. But I do think the valuation is still, I catch them.

**Travis Hoium** (2:11)
So is that the criticism of the quarter and the stock right now still is that maybe this is a more attractive bank than other banks because it is growing more quickly. I just don't, I still don't want to pay this price. And what price do you think it becomes more intriguing?

**Lou Whiteman** (2:30)
Yeah, my criticism is why now, guys? We've known this for a while, so I don't know why maybe that there was hope that we were going to see different in the new quarter, but I mean, they are what they are.
The fintech business is, it's not nothing, but there are dozens of software vendors that will give you banking as a service. And inevitably, these faux banks come and go left and right. There isn't really any differentiator. So that software business always seemed a little suspect to me. If you want a great fintech bank story, buy Live Oak, don't buy SoFi. SoFi is a retail bank. And at some point, we should value it like one.

**Travis Hoium** (3:12)
Rachel, do you see this quarter similarly, or do you look at these?
Not only did they grow members, but they actually grew products faster than members, which tells you that their uptake on those products is a little bit higher. So getting more people in the ecosystem and getting them to use SoFi more.

**Rachel Warren** (3:29)
Yeah, I have a few thoughts on this. And I don't necessarily think you can value SoFi the same way you would legacy banks. But I do think there's a few kind of very practical reasons why we've seen some of the pressure on the stock. I mean, going back to the quarter, they added over a million new members in the quarter alone. Their base is just shy of 16 million people on that banking side. Management raised SoFi's full year revenue outlook, so that kind of core machine seems to be resilient. Now, it was interesting. I think one of the things investors didn't like was of course, the tech platform segment that dropped 23% in terms of revenue. And that was largely because we saw a major enterprise client that had left the platform at the end of last year. So we've been seeing the impact since then. Full year profit and earnings per share guidance remained the same. I think we're in a market where a lot of investors are hoping for not only a beat but a raise. The risk that I would be watching here is SoFi is leaning heavily into capital-intensive lending to fuel its growth story. We saw total loan originations hit a record $14.8 billion. That included about $10.7 billion in personal loans.