Needham analyst Kyle Peterson reiterated SoFi Technologies, Inc (NASDAQ:SOFI) with a Buy rating and a $10 price target.
Peterson is impressed by SoFi's interchange revenue growth and noted it as a sign of strong user engagement in its core customer base.
While interchange is a small piece of the overall business, the analyst expects it to remain one of SoFi's fastest-growing products. Given its lower capital intensity and lack of credit risk relative to lending, the business should be valued like a payments asset, as per Peterson.
The analyst expects interchange to garner attention as it grows and becomes one of SoFi's more significant fee income streams.
Peterson noted that SoFi's tech products and solutions segment is underappreciated by the market and views it as adding incremental growth vectors while also allowing SoFi to diversify into adjacent products and international markets without taking on additional credit risk or committing balance sheet capital to fund these efforts.
The analyst noted this segment as a key to expanding SoFi's overall valuation as this segment has a software revenue model, which will garner a higher multiple relative to the core lending business.
Given the healthy growth runway, Peterson's updated model assumes higher expenses, especially in tech and product development.
Peterson projected that the second quarter's adjusted revenue and EPS would be $561.4 million and $0.00.
Price Action: SOFI shares are trading higher by 0.07% to $6.44 at last check Tuesday.
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