My Current Outlook on SoFi Technologies
My Current Outlook on SoFi Technologies
Taking a Look at SoFi Technologies (SOFI).
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The Future is Bright
SoFi Technologies (SOFI) has been a standout performer in the often-stagnant banking sector, seeing its shares increase by 64% since the start of 2023. Despite this surge, the stock remains 71% below its peak and is valued at a market cap of below $8B, keeping it in the mid-cap range.
Founded in 2011 amidst skepticism following the Great Recession and at the dawn of smartphone-driven mobile banking, SOFI has successfully begun disrupting the massive financial services sector. With over 7 million customers today, the company is significantly smaller than giants like JPMorgan Chase (JPM), which serves over 80 million consumers. This disparity right here highlights SOFI's considerable growth potential and its opportunity to greatly expand its market share.
One of the key elements of their success has been its tech- and digital-first strategy, focusing on enhancing user experiences and increasing the use of its diverse financial products. Over time, the average customer has grown to use 1.5 products. Initially attracted by competitive offerings such as a savings rate of 4.6%, customers often expand their engagement by opening brokerage accounts or taking out mortgages, leading to increased long-term revenue for SOFI.
Historically a money-losing enterprise, the company achieved a milestone last quarter by reporting positive generally accepted accounting principles (GAAP) net income for the first time (which the market still wasn’t impressed). With management confident in the continued rapid expansion of the bottom line, the company’s path to scale and operating leverage appears robust, offering an attractive investment prospect.
Shares of SOFI currently trade at a P/S ratio of 3.4, substantially below their historical average, suggesting an appealing valuation. For investors able to commit significant initial capital with a long-term perspective, this has potential to be a big winner. However, it’s crucial to consider risks such as the performance of SOFI’s predominantly personal loan-based book in potential recessionary conditions and the ongoing competitive pressures within commoditized financial services. Despite these challenges, my outlook on the company remains bullish over the long-term, as the company continues to innovate and potentially reach new heights in the financial sector.