Fintech is a growing and popular industry that offers investors many promising opportunities.
First, fintech companies are often able to achieve scale quickly. This is because their solutions are often delivered through software, which users can easily scale up. Second, these companies are often able to generate high margins because their solutions often replace more expensive traditional solutions, such as the manual processing of financial transactions. Finally, they are backed by strong teams with deep sector expertise.
As a result, it is no surprise that fintech is one of the most exciting sectors in the economy today, and SoFi Technologies Inc. (SOFI, Financial) is one of the most exciting companies in the industry.
SoFi is a leading financial technology company providing innovative products and services. Founded in 2011, the company has grown rapidly to over 3.8 million members. The company offers a variety of financial products, including student loan refinancing, home loans and personal loans. SoFi has been a great investment for many people, and its products have made it one of the most popular fintech companies in the world.
So far this year, SoFi Technologies' stock has not been doing very well because investors are moving to defensive stocks and away from growth stocks. In addition, SoftBank (TSE:9984, Financial) is reportedly planning to dispose of part or all of its 9% equity stake in the company.
Regardless, SoFi's latest earnings indicate it has done well financially and has developed an attractive ecosystem that will power its results this year. The investment world should take notice.
SoFi's latest earnings continue its evolution
SoFi Technologies' recent earnings report, which was released Aug. 2, seemed to meet expectations. The online personal finance company locked in record-breaking quarterly revenue and marked its eighth quarter of positive adjusted Ebitda.
The company also provided a slightly more confident forecast, expecting $1.50 billion to $1.51 billion in full-year adjusted net revenue. In addition, SoFi now expects adjusted Ebitda between $104 million and $109 million, up from previous guidance of $100 million to $105 million.
Loan demand is rising as more people avail themselves of SoFi's loans. Delinquency rates also remain low, while memberships continue to grow quarter after quarter.
It is worrisome that there have been problems with the home and student loan segments. The originations of these loans dropped by more than 50% in just one quarter because interest rates have been on an upward trend and the moratorium on student loan repayment.
However, SoFi's recent earnings report and other lending data have indicated the company is evolving as a corporate entity. You have to give credit to management here for the work they are doing. SoFi offers a wide range of services, including personal, student, mortgage and investment products. Simply put, the student loan payment pause, which SoFi expects to last until January 2023, will not significantly impact the company.
The year is shaping up to be a big one
SoFi has established itself as a one-stop shop for financial services, and this benefit extends to its ecosystem.
The company has built an ecosystem that is highly organized and easy to navigate. This is evident in how it has streamlined the process of refinancing student loans. SoFi's online platform provides a user-friendly interface that allows borrowers to compare rates and terms easily. In addition, its network of partner institutions makes it easy for borrowers to find the right lender for their needs. As a result, SoFi's ecosystem provides a major advantage to borrowers looking to streamline their operations.
SoFi owns Galileo, a technology company behind an application programming interface used by many in the fintech space. As many of its competitors use this application programming interface for their day-to-day operations, it places the company in a unique position. Besides fintech companies, other brands that give their followers store-specific cards also benefit from the application programming interface.
To stay ahead of the game, SoFi also purchased Technisys, a company that provides services for bringing banks into this digital era. It offers services across 16 countries and will help expand internationally while providing technological offerings, which should lead to higher revenue.
Earlier this year, Sofi Technologies completed its purchase of Golden Pacific Bancorp to diversify its lending options and eliminate reliance on third parties. The acquisition will allow it funding for low-cost loans, which has been very successful in the market so far; competitors must partner with financial institutions if they want to fund their financing needs adequately.
For the company to get a bank license, it acquired Golden Pacific Bank. The Office of the Comptroller of the Currency approved the license in January, completing a huge milestone for SoFi. A banking charter is an important turning point in fintech and will help boost earnings year round.
Risks to the bullish thesis
SoFi is a great company, but there are also some risks that are sometimes overlooked.
First, SoFi's lending margins may be squeezed if interest rates rise. This will eat into its profits, and investors will be less likely to buy its shares. It will likely be one of the first financial institutions to feel a dip in revenue if the economy slows down. To stay ahead of this risk, the company has developed an artificial intelligence-based credit scoring platform to evaluate consumer creditworthiness. However, that does not mean it can remain completely immune.
Second, the current student loan moratorium might be extended, which will have a big impact on the lender. The company saw its stock plummet when President Biden announced an extension to the payment pause in April, and it was not very surprising that it had to adjust guidance as a result. The student refinancing aspects of the company are down substantially from pre-Covid levels.
Finally, SoFi is a growth stock, so it is affected by recent market news. For example, Japanese conglomerate SoftBank is reportedly planning to sell part of its roughly 9% stake in the company. In response to news reports regarding the sale, SoFi's shares fell sharply.
SoFi also faces competition from established financial institutions and online lenders. As the company continues to grow, it must navigate these challenges to remain successful.
Takeaway
SoFi could be a great investment for many reasons.
First and foremost, it is a leading player in the fintech space. Fintechs are becoming universal, and SoFi is in a strong position. The company has consistently delivered impressive results and industry experts highly regard its products and services.
SoFi is also a growing company. It is rapidly expanding its operations and entering new markets, which provides investors with ample opportunity for upside.
Consequently, SoFi is an attractive investment option for those seeking exposure to the fintech industry.
