You know how it is — kids these days steer clear of the places their parents frequent, whether it’s shopping or banking. That’s made way for neobanks like SoFi Technologies (NASDAQ:SOFI), which just hit a significant milestone: its first profitable quarter.

SoFi has spent the last decade becoming a force in student lending, dangling attractive rates in front of younger consumers. When COVID hit, the digital bank capitalized on the opportunity, gaining market share from legacy banks and rapidly expanding its offerings of personal loans, mortgages, and high-yield bank accounts.

Transforming into a titan: At the start of 2020, SoFi held just 1% of new account openings among major banks. By mid-2023, that figure had quadrupled to 4%. Despite winning over Gen Z and Millennials, the company incinerated billions in capital to acquire users, however, a turning point came in 2022.

• SoFi obtained a national bank charter license to become a full-fledged bank — enabling it to offer new products at more competitive rates.
• Since then, its net interest income has grown nearly 8x — a key metric in analyzing a bank — positioning SoFi on track to achieve its goal of becoming a “top 10 financial institution.”

Yesterday, SoFi reported its first-ever quarterly profit in its 13-year history, beating analysts’ expectations and sending its stock price up by over 20%. In Q4 2023, SoFi added over 585K new users, a 44% year-over-year increase — while new loans and total deposits experienced double-digit growth.

Going from Good to Great won’t be easy

Even with expectations of falling interest rates in the coming year, SoFi anticipates 2024 to be a “transitional year” — and foresees achieving full-year profitability. To accomplish this, it must continue launching new products and pursuing sustainable growth.

• The company projects its Financial Services division to grow by “at least” 50% this year as its bank account, credit card, and other products continue to attract new users.
• SoFi is also launching alternative investments, allowing users to invest in commodities, private credit, real estate, and pre-IPO companies.

Forward-looking: Analysts at Jefferies have reiterated a $15 price target (63% upside), adding that “SoFi continues to navigate well in a somewhat challenging environment.” SoFi anticipates a 20-25% compounded annual growth rate between 2023 and 2026, signaling its commitment to sustained growth beyond 2026.