SoFi Technologies (NASDAQ:SOFI) is branching out, particularly through the acquisition of a mortgage lender. It’s a bold move and possibly a controversial one. Yet, I am bullish on SOFI stock as it makes perfect sense for SoFi Technologies to diversify its business model now.
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SoFi Technologies operates an app-based bank, but there’s more to the company than just online checking and savings accounts. SoFi’s customers can borrow and invest money, and as we’ll discover, the company is growing and broadening its scope. This should benefit all of its stakeholders.
Furthermore, analysts generally favor SoFi Technologies and expect the share price to move higher. Additionally, while SoFi isn’t currently profitable, the company has a good track record of beating quarterly EPS expectations. So, if you don’t mind taking a chance on a disruptive up-and-coming bank, let’s now find out what sets SoFi Technologies apart from the competition.
SoFi Technologies Ups the Ante on Depositor Protection
SoFi Technologies has a banking charter, but the company is different from traditional banks because SoFi is digital-first and appeals to a younger group of customers. However, the recent banking crisis might cause skeptics to wonder whether SoFi Technologies is willing and able to protect its depositors, including the large-sized ones.
This is a valid concern during a time of bank failures. The implosions of SVB Financial Group subsidiary Silicon Valley Bank and Signature Bank mean that customers and investors can’t always trust banks in 2023 to keep their deposits secure. However, SoFi Technologies is taking action to assure its depositors.
As you may know, the industry standard among U.S. banks is for the Federal Deposit Insurance Corporation (FDIC) to insure customers’ deposits of up to $250,000 per account. That’s not reassuring for bigger depositors, however. Fortunately, SoFi Technologies just announced that it’s offering up to $2 million of FDIC insurance per customer account. This applies to both SoFi Checking and Savings accounts.
Thus, SoFi Technologies and its CEO, Anthony Noto, are demonstrating their responsiveness to the needs and concerns of the company’s anxious account holders. “By offering access to up to $2 million in FDIC insurance, we are making sure our members have peace of mind about their money at SoFi,” Noto assured.
SoFi Technologies Diversifies Through an Acquisition
Even with the enhanced deposit protection, some folks will still be skeptical about SoFi Technologies. After all, Silicon Valley Bank and Signature Bank failed, so what makes SoFi different? Yet, let’s bear in mind that SoFi Technologies didn’t over-invest in government bonds or cryptocurrencies. Plus, SoFi’s business model isn’t too dependent on any particular market segment, and the company just diversified ever further through a notable acquisition.
Here’s the scoop. This week, SoFi Technologies acquired a mortgage lender called Wyndham Capital Mortgage in an all-cash transaction. It’s a great way for SoFi to delve deeper into the modern housing market and to appeal to younger customers, as Wyndham Capital Mortgage provides a fully-digital experience for borrowers.
In other words, Wyndham Capital Mortgage is a perfect fit for SoFi Technologies. Millennials and Zoomers don’t necessarily want to deal with the time-consuming process of applying for a home loan through an old bank with a physical building. So, once again, SoFi is setting itself apart from traditional financial institutions that refuse to keep up with modern trends.
Noto contends that SoFi Technologies’ buyout of Wyndham Capital Mortgage will allow SoFi to “scale and keep pace with accelerated growth.” I tend to agree with this statement and would add that the acquisition broadens SoFi Technologies’ business model by providing exposure to the housing market. It will be interesting to see if SoFi engages in more strategic acquisitions for added growth and diversification this year.
Is SOFI Stock a Buy, According to Analysts?
Turning to Wall Street, SOFI comes in as a Moderate Buy based on eight Buys and three Hold ratings. The average SoFi Technologies stock price target is $8.20, implying 38.6% upside potential.
Conclusion: Should You Consider SOFI Stock?
Don’t get the wrong impression here. SOFI stock likely isn’t safer than a big bank stock. However, SoFi Technologies’ recent developments indicate that the company is taking depositor security and business diversification seriously.
That’s reassuring, and so is the fact that TipRanks didn’t detect any Sell ratings for SOFI stock. Hence, I’d say it’s a great time for risk-tolerant traders to consider a small share position in SoFi Technologies.
