One of my favorite names in fintech popped big recently – to the tune of about 15% in a day. Year to date, it’s up over 60%.

In case you aren’t familiar, fintech is shorthand for financial technology. It refers to things like software, apps, or other technological solutions that help improve efficiency and the overall experience for customers (and institutions) in the financial world (think payments, banking, etc.)

Some well-known fintech innovators have already upended the existing electronic payments infrastructure. One of the most notable innovators is PayPal (Nasdaq: PYPL), which spun off from eBay (Nasdaq: EBAY) in 2015. Square (NYSE: SQ) is another powerful player in this arena.

Both companies still have a lot of runway for growth ahead. But as I’ve mentioned before, many smaller names will disrupt banking and finance in the years ahead. And if you can catch on to one of them before the rest of the crowd, the gains could be enormous.

That’s where Sofi (Nasdaq: SOFI) comes in.

To call Sofi an online bank would be accurate in one sense, but it would also be a disservice. Think of it as an online financial supermarket that offers a full suite of traditional products and services. We’re talking about checking accounts, credit cards, mortgage loans, and commission-free investment platforms.

So what has Sofi jolting higher these days? Credit another beat-and-raise quarter.

Firing On All Cylinders

Sofi has now delivered ten consecutive quarters of record revenues. The financial services provider picked up 717,000 new clients between July and September and has grown the member base by 2.2 million (almost 50%) over the past 12 months to reach 6.9 million.

_{SoFi Q3 2023 Earnings Presentation}

Those customers opened 1 million new accounts during the period, raising the total to 10.4 million. Some simple math says the average customer now holds about 1.5 products, meaning many have decided to open a second or third account – always a positive sign. After slowing somewhat earlier in the year, the growth in new product additions has re-accelerated to 45%.

As a digital financial hub where members can save, spend, borrow, and invest money, Sofi attracted $2.9 billion in new checking and savings deposits during the quarter and now has $15.7 billion tucked away. About 90% of that cash belongs to customers who have set up direct deposits.

That’s important for two reasons. Setting up payroll direct deposits with their employers means most customers consider Sofi their primary bank account, not just a temporary place to stash some money. These accounts tend to be stickier. They also generate heavier debit card usage (meaning more transaction fees for the issuing bank).

If you annualize purchases from the last quarter, Sofi’s customers now spend $5 billion yearly on debit cards. That volume has more than tripled from a year ago when the company was first granted a commercial banking charter.

The Case For SoFi

SoFi can pay more generous deposit rates without brick-and-mortar overhead expenses than traditional banks. It’s coaxing new customers with a premium 4.60% APY with zero fees. That explains why deposits have surged from $1 billion at the beginning of last year to $15+ billion today — tripling over the past 12 months alone.

Those deposits create a low-cost funding pool to support the firm’s core lending operations. While the interest-bearing liabilities rate ticked 18 basis points last quarter, the average coupon on interest-earning assets rose 53 points – widening the all-important net interest margin (NIM).

SoFi continues to see “unprecedented” demand for personal loans, issuing nearly $4 billion last quarter. These can be used to pay for a wedding, cover home remodeling, or to refinance and consolidate outstanding credit card debt. Meanwhile, with student loan forbearance finally ending and payments resuming for the first time in three years, SoFi’s student loan originations doubled last quarter to $0.9 billion.

The average interest rate on these loans runs into the low teens, producing an enviable NIM of 6.0% — a new record high. Multiply that by a growing portfolio of loans, and you can see why net interest income spiked 119% to $345 million. EBITDA expanded even faster, soaring 121% for the period.

Action To Take

On a GAAP basis, SoFi hasn’t yet achieved profitability. And I stress yet. Losses narrowed to just $0.03 per share last quarter, excluding a one-time charge. Marketing outlays to attract new customers take a large bite. But as revenues grow, these expenses will scale and become a smaller slice of a growing pie.

Management expects to turn the corner to GAAP profitability next quarter and remain in the black in 2024 for the first time. Profits could potentially triple the following year.

That depends in part on credit quality. I’m monitoring delinquencies and write-offs to ensure growth doesn’t come at the expense of underwriting standards. But right now, lending remains disciplined and focused on high FICO borrowers.

Despite a 60% rally in the stock this year, SoFi is still trading at a discount relative to its future cash flow potential. If you’re a growth-minded investor looking for a new portfolio addition, these upbeat results and guidance should give you confidence in the name moving forward.

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