Is $Sofi a 10X stock?
Objective and disclaimer
The objective of this document is to provide a deep dive on Sofi but it should never substitute your own due diligence. I would never recommend investing or trading solely on third party information. The following analysis was conducted before 9 July 2021 so it does not take into account any information released about the company after that date.
I have not bought Sofi at this moment of writing.
What is Sofi?
Sofi, a mobile-first service based in San Francisco, SoFi provides a suite of financial products that include student loan refinancing, mortgages, personal loans, credit cards, investing and banking through both their mobile app and desktop interfaces.
Sofi which also means “Social Finance” has been recently gone public on June 1 2021 following a merger with a SPAC known as Social Capital Hedosophia Holdings V.
From the charts, you can see that the price of Sofi has maintained between the range of $15 to $20.
Let’s discover why Sofi has been gaining popularity amongst investors and also what potential and risk Sofi holds in the future.
History
SoFi was founded in 2011 by Mike Cagney, Dan Macklin, James Finnigan, and Ian Brady, four students who met at the Stanford Graduate School of Business. The founders hoped SoFi could provide more affordable options for those taking on debt to fund their education. The company’s inaugural loan program was a $2 million pilot at Stanford. For this pilot, 40 alumni invested about $2 million in approximately 100 students, for an average of $20,000 per student.
There are a few notable funding rounds that include Series C — Discovery Capital Management with participation from Peter Thiel, Wicklow Capital in 2014. In September 2015, Former SEC Chairman Arthur Levitt was added as an advisor. The firm also raised a $1 billion round of investment from SoftBank and said it had funded $4 billion in loans. This is the full list of funding from https://app.dealroom.co/companies/sofi
Leadership
On September 11, 2017, Chief Executive Mike Cagney announced he would resign by the end of the year due to allegations of sexual harassment and skirting risk and compliance controls. Announced January 23, 2018, Anthony Noto resigned from his position as COO of Twitter, to become the CEO of SoFi. Anthony was also previously an MD From Goldman Sach and CFO of NFL.
Viewing from Glassdoor.com, Anthony’s leadership has a fairly good approval rate of 77% voted by employees of SoFi.
The model turnover
SoFi originally utilized an alumni-funded lending model that connected students and recent graduates with alumni and institutional investors via school-specific student loan funds.
As SoFi’s product offerings expanded to include mortgages, mortgage refinancing and personal loans, the company moved away from an alumni-funded model to a non-traditional underwriting approach focused on lending to financially responsible individuals. SoFi uses an underwriting model that examines free cash flow, professional history and education in addition to a history of responsible bill payment to evaluate its borrowers.
Current products and services
SoFi has managed to consistently ship new offerings.
- Money — It is a direct deposit that gives you a fixed APY for your deposits
- Relay — They called it “Credit Score & Budgeting” now. This allows customers to do credit scoring monitoring, spend tracking and view financial insights at no cost.
- Invest — There is active and automated investing, retirement accounts, even crypto and fractional shares. Recently there is IPO investing where customers get in a buy at IPO price.
- Loans — In loans there are student refinancing and private student loans, but has branched out to personal loans, auto refinancing and home loans
- Credit card — Gives you 2% unlimited cash back, no annual fee and allows you to redeem points straight into crypto via SoFi active invest account.
The one-stop-shop app
Currently, many Americans use multiple banks because of flexibility, want their finances spread out, wants different services and products and lower fees. According to “Go Banking Rates, Jan 17, 2018” 80% of consumers cite inadequate One-Stop Shops as the reason for more than 1 account. Sofi strategy is to provide a one-stop-shop in one app.
Banking license and acquisitions
In March 2021, SoFi received acquired a national bank charter. With the Golden Pacific takeover, SoFi will switch its current application to a change-of-control application. The acquisition will both accelerate the pursuit to establish a national bank subsidiary, as well as to fast track more new offerings for customers.
Acquisition of Galileo
SoFi has bought payments software company Galileo for $1.2 billion. Galileo is the leading supplier of infrastructure services to the world’s leading fintech companies, so being able to distribute these products through our enterprise-class API. Galileo also works with many of SoFi’s competitors, including Robinhood, Chime, Monzo, Revolut, Varo and TransferWise.
While Galileo’s powerful API and payments platform already power SoFi’s Money product, beyond that both companies share a vision of reinventing and optimising in a few ways.
- Offer Sofi Loans, Brokerages, Lantern marketplace and new technology services to ~50M accounts via Galileo’s partners
- While accelerating SoFi strategy, it also helps expand Galileo’s product & services to 50M of its partners.
- Enables product roadmap for new tech services & geographic expansion into Latin America with high margin tech revenue stream, also allowing increased diversification
- Drive SoFi’s direct deposit relationship for cross-buy at lower cost and higher unit economics
Current financials
The adjusted net revenue has been generally uptrend, hitting 151% Year-on-year for Q1 2021.
SoFi has also achieved the 3rd consecutive quarter of positive EBITDA, therefore 2021 marks the first profitable year.
Addressable market
SoFi strength in private student loans continues to bring new customers into the ecosystem. The data show that private loans have grown 71% and the amount of new private student lending has continued to grow. https://protectborrowers.org/130-billion-psl-market/
Sofi’s user adoption
From SimilarWeb’s usage ranking, data showing that more people than ever are using SoFi’s mobile app. The company’s reach and user base are both expanding rapidly.
The reviews on the app store look promising with a 4.4-star rating, reflecting that customers are generally pleased with the company and their digital app.
SoFi membership
What makes SoFi unique from most other challenger banks is the premise of Membership, which is much more of a community-centric strategy as opposed to a commercial-partner strategy seen across the banking world, from both disruptors and incumbents. Individuals must be accepted in order to become SoFi Members. https://www.sofi.com/member-benefits/
Financial prospects
On the aggregate, with this year’s ability to make a profit of 3% (Adjusted EBITDA Margin) and a 70M Year-on-year results, it shows that SoFi has found its path to profitability by expanding it services, and
Relying on the 3 business models, SoFi has plan from customer lifecycle to be extended from the path of profitability to profit generating model.
Investment risk
Do take note that Sofi Lock-up period expiring later this month. https://sec.report/Document/0001628280-21-004952/
1st unlock period was 28 June 2021 (33%)
2nd unlock period is on 27 July 2021 (50%)
3rd unlock period is on 28 Nov 2021 (17%)
What’s a good entry price?
Looking at the charts, there are selling pressures due to the lockup schedules being released. From the prospects of SoFi mentioned earlier, Sofi has potentially go down to the last retrace price of about $14 in the short term, that’s is potentially a good buy price on NASDAQ for SoFi.
Price prediction
Based upon 2 wall street analysts, the 12 monthly forecasts is projected to go to an average price of $27.50. That makes it a 70% gain from today’s entry price of $16.
Conclusion
The segmentation to target High Earners Not Well Served(HENWS) allows SoFi to capture more value than competing banks and challengers from a lending and product offering perspective. With a smaller market cap of 12.34B, as compared to bigger competitors such as Square or Paypal make SoFi potentially a 10X investment candidate in the long run.
