Shares of SoFi Technologies (SOFI) were up 20% last week, on the back of several new endorsements. I’m constructive on SoFi in the wake of this surge and feel that there is plenty of room for it to continue to run.
Even with this uptick taken into account, shares of SoFi are actually still down about 30% from their 52-week high. This week’s positive news includes Morgan Stanley (MS) initiating coverage on the company and assigning a $25 price target to it, as well as CNBC’s Jim Cramer hailing as one of the ‘nouveau banks’ and saying it is worth getting exposure to this new class of financial institutions.
Given how pervasive the SoFi name is, whether it is the gleaming new SoFi Stadium in Los Angeles or the commercials that are seemingly everywhere, it is easy to forget that SoFi is still relatively new to the public markets and that it is still only a $15 billion market cap company. (See SoFi stock charts on TipRanks)
Building a Comprehensive Fintech Ecosystem
SoFi began as a lender which enabled customers to refinance student loans, but has since expanded into 37 other verticals. These new business segments range from mortgages to crypto, and include niche products like wedding loans and travel loans, making SoFi a case study in how to start with one market and branch out into other tangential markets. By starting with student loan refinancing and expanding into these other verticals, SoFi has become an all-encompassing financial platform.
Through cutting its teeth with student loans, this company has been able to attract a younger cohort of consumers whose best earnings years are likely ahead of them, enabling Sofi to grow with these digitally-native customers as they get ready to take out mortgages or begin investing. This creates a flywheel effect for SoFi, wherein it becomes easy to cross-sell one a wide array of products to its existing customer base and increase the lifetime value of these customers.
SoFi reached a net promoter score of 90 last year, indicating that customers and employees are happy with the company.
SoFi Technologies has a number of other additional opportunities and catalysts on the horizon, which make it a compelling stock.
Galileo – Expansion into B2B Vertical
While the above-discussed efforts to become a dominant consumer platform, SoFi’s acquisition of Galileo Financial Technologies represents its foray into the business-to-business segment. Earlier this year, SoFi acquired Galileo for $1.2 billion.
Galileo is primarily a payments processor that connects banks to credit card processors via API. Galileo founder and CEO Clay Wilkes described Galileo by saying, “Through the API what we’re doing is creating and managing accounts, authorizing merchant transactions, monitoring fraud, initiating disputes and chargebacks… We support (direct deposit accounts) and we do credit products. All of these capabilities are capabilities that fit on our platform.”
The important thing to note here is that Galileo further diversifies SoFi and gives it a foothold into the B2B market instead of solely B2C.
Cryptocurrency Trading
SoFi began allowing customers to invest in cryptocurrencies earlier in 2021. It currently allows customers to trade 28 different crypto assets, comparing favorably to peers like PayPal (PYPL) and Square (SQ) (via Cash App), which also allow crypto trading but across a more limited range of assets. For example, SoFi users can buy assets like Cardano, Solana, and Polkadot, some of the largest cryptocurrencies by market cap, which are not available via PayPal or Cash App.
SoFi makes money on crypto trading by charging a 1.25% markup on crypto transactions. As interest in cryptocurrency continues to increase, awareness of SoFi’s crypto platform spreads, and trading volumes on the platform increase (for example, in times like the past several weeks when Bitcoin (BTC-USD) prices are testing all time highs), this could become a substantial revenue driver for SoFi.
Bank Charter
Another big catalyst ahead of SoFi is the possibility of the company receiving approval for its bank charter. Receiving this charter would be a boon to SoFi, as it would give it access to the same low interest rates that traditional banks enjoy. The aforementioned Morgan Stanley analyst, Betsy Gracek, believes that SoFi will receive approval for its bank charter next year.
Analyst Sentiment
The analyst consensus is that SoFi is a Strong Buy. 5 out of 6 analysts covering the stock view it as a Buy, while one analyst has a Hold rating. The average SoFi price target is $24.58, which implies 26.8% upside from current levels even after this week’s gains. The lowest analyst price target of $16.50 seems to suggest there is limited downside at current levels.
Given the number of catalysts and opportunities ahead, and the fact that SoFi is still in the early stages of building an all-encompassing personal financial platform that could become a household name on par with legacy financial institutions, I agree with the analyst consensus and I am also bullish on SoFi.
The stock has been volatile since it went public via a business combination with Chamath Palihapitiya’s Social Capital B SPAC, so long-term investors can look for opportunities to accumulate shares during market weakness.
Disclosure: At the time of publication, Michael Byrne does not own shares of SoFi.
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