Fintech or financial technology is transforming the financial sector in the United States. People are increasingly opting for student, home, and auto loans, buying insurance, and availing of different financial services through one-stop apps or financial platforms.
According to a ResearchandMarkets report, the total transaction value in the personal finance sector is expected to grow at a compounded annual growth rate (CAGR) of 23.1% between 2019 and 2024.
Let’s compare two such fintech stocks, SoFi Technologies (SOFI), and Upstart Holdings (UPST), using the TipRanks stock comparison tool, and see how Wall Street analysts feel about these stocks.
SoFi Technologies
SoFi (or Social Finance) stock experienced some pullback Tuesday as the stock fell 5.5%. This was following the company’s announcement of a secondary offering of 50 million shares from some of its selling shareholders including Silver Lake Partners, SoftBank Group Corp., Qatar Investment Authority, Red Crow Capital, and ChaChaCha SPAC 5.
SoFi made it clear that it would not “receive any proceeds from the sale of the shares of common stock by the Selling Stockholders.”
In the past month, the stock has risen 3.6%, fueled by strong Q3 results. In the midst of a volatile economic and market environment, the company delivered record Q3 adjusted net revenues of $277.2 million, up by 28% year-over-year and beating the consensus estimate of $255.63 million.
SoFi uses the adjusted net revenue metric within its Lending business segment where the net revenue figure is “adjusted to exclude the fair value changes in servicing rights and residual interests classified as debt due to valuation inputs and assumption changes (including conditional prepayment and default and discount rates).”
The company offers a suite of financial products through its platform, a one-stop-shop app and its key business segments include Lending, a technology platform, and Financial Services.
The Lending segment reached a new high in Q3 with adjusted net revenues of $215.5 million, up by 21% year-over-year, and comprised 77% of the company’s total adjusted net revenues. (See Analysts’ Top Stocks on TipRanks)
Anthony Noto, CEO of SoFi Technologies, commented on the uptick in Lending revenues as “driven primarily by record funded volume and revenue in our personal loans business — a testament to our success over the past four years in diversifying this segment beyond Student Loan Refinancing, where volumes remain at less than half their pre-Covid levels.”
More importantly, the company has been investing significantly to increase brand awareness and growth in members and its products. It is doing this through partnerships with digital influencers on social media platforms like Tik-Tok, and an enhanced referral program.
This has led to spectacular growth in its members and products in Q3 with a year-over-year growth rate of 96% and 108%, respectively. At the end of Q3, SoFi had 2.9 million members and 4.3 million products.
Rosenblatt Securities analyst Sean Horgan was positive about SOFI’s Q3 results and its other key metrics and expects that the bank charter approval for the company will come through by the second quarter of next year.
The analyst is bullish with a Buy rating and a price target of $30 (39.2% upside) on the stock.
A national bank charter is a key element of SOFI’s long-term strategy. In a bid to obtain this bank charter, SoFi entered into an agreement to acquire registered bank holding company, Golden Pacific, in March this year.
The rest of the Street echoes Horgan’s view and has a bullish stance with a Strong Buy consensus rating based on five Buys and one Hold. The average SoFi price target of $26.33 implies approximately 22.1% upside potential to current levels.
Upstart Holdings
Upstart Holdings is a cloud-based artificial intelligence (AI) lending platform that connects consumers to its network of AI-enabled bank partners for loans.
The company charges referral fees to banks for every loan referred through the Upstart.com website and originated by a bank partner. UPST also charges a platform fee for every loan origination, regardless of its source, and servicing fees for loans as consumers repay them.
Upstart reported stellar Q3 results as revenues soared 250% year-over-year to $228.5 million, surpassing analysts’ expectations of $214.9 million. Adjusted diluted earnings came in at $0.60 per share, topping the consensus estimate of $0.35 per share.
While investors don’t seem to be cheering Upstart’s Q3 results, as evidenced by the stock sliding 8% in the last five days, JMP Securities analyst Andrew Boone has a different take.
According to Boone, the “key takeaway from the quarter was that Upstart provided a timetable for its new loan products as small dollar and commercial loans are expected to go live in 2022 while Upstart’s investment in a mortgage product will become more significant next year.”
Upstart was always ambitious to expand beyond personal loans and is continuing to make progress in auto loans. Last month, the company launched Upstart Auto Retail software, which combines Prodigy Software and Upstart intellectual property (IP), and enables dealerships to offer customers auto loans. (See Top Smart Score Stocks on TipRanks)
Dave Girouard, Upstart CEO, elaborated on this at its Q3 earnings call, “we’ve now tripled the number of dealers on our platform compared to a year ago, and in Q3, we added an average of more than one rooftop [dealer] a day.”
Boone considers this heartening and believes that with the auto loan market six times the size of the personal loans market, “this remains a major catalyst for revenue upside while Upstart’s Spanish personal loan product ramps and new products go live next year.”
The analyst was also positive about the news that Upstart’s four bank partners have dropped their Fair Isaac Corporation (FICO) credit score requirements as with “Upstart well positioned to provide credit scoring for banks using alternative data, we expect bank partners to increasingly lean on Upstart as they adopt newer, more advanced credit scoring models.”
As a result, Boone remained upbeat about the stock with a Buy rating, but lowered its price target from $327 to $315 (31.1% upside).
The rest of the Street, however, is cautiously optimistic with a Moderate Buy consensus rating based on four Buys, two Holds, and one Sell. The average Upstart Holdings price target of $307.86 implies approximately 28.3% upside potential to current levels.
Bottom Line
Analysts are bullish about SoFi and if the approval for the bank charter comes through, it could be a major upside catalyst for the stock.
In contrast, analysts are cautiously optimistic about UPST as the company is still in the process of offering more credit products that would enable it to take advantage of the $3.6 trillion (by Boone’s estimate) U.S. consumer credit market.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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