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Down 50%, This Fintech Disruptor Looks Like a Buying Opportunity

By Matthew Frankel, CFP® and Jason Hall – Sep 5, 2021 at 8:11AM

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For a stock that has been cut in half, this company is producing some strong results.

Fintech disruptor SoFi Technologies (SOFI -0.84%) went public earlier this year through a SPAC merger, and despite reporting excellent second-quarter numbers overall, is down by about 50% from its highs. In this Fool Live video clip, recorded on Aug. 23, contributors Matt Frankel, CFP, and Jason Hall discuss SoFi's recent performance and why investors may want to put it on their radar. 

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Matt Frankel: If you remember, this was a Chamath Palihapitiya SPAC. This was IPOE, if I got my letters correct. Recently completed its SPAC merger earlier this year, SoFi ended up getting something like a billion dollars of cash out of the deal for growth capital. SoFi stands for Social Finance. I want to share my screen real quick because I had their investor presentation on my screen and it's worth looking at. Do you all see that OK?

Jason Hall: Yeah, it looks great.

Frankel: OK, good. I use three monitors and sometimes I share the wrong one. This is SoFi's member growth. Not only has SoFi grown its business from 704,000 members in the beginning of 2019 to almost 2.6 million members today, if you look at these blue numbers toward the bottom of the chart, this is the year-over-year growth rate, that has accelerated for eight consecutive quarters. A lot of times, you'll see early stage companies grow by 100% one year, then it will slow down to 90% the next year, and so on and so on. We're not seeing that with SoFi. This is really picking up. A big reason is they're offering more and more individual products to people that are bringing more people into their ecosystem. Similar to what Square (SQ -1.43%) is doing with the Cash App. When Square decided they were going to sell Bitcoin or allow Bitcoin, a lot of people flooded into the Cash App. When Square rolled out a brokerage platform, a lot of people went into the Cash App ecosystem. Same thing's happening here. SoFi started out as a private student lender, not a giant market. Federal student loans take care of it for a lot of students. Private student loans have a lot of disadvantages over federal. They expanded into personal lending, which they've done really, really well. Other types of lending, they facilitate mortgage loans on their platform, auto loans. Now on the other side, they have the brokerage platform that allows cryptocurrency trading. It's a Robinhood that's meant for longer-term investors. It's the best way I can describe their investment platform. They prioritize things like investor education, long-term holding, things like that. With the same kind of, I don't want to say gamified, but the same fun-to-use platform as Robinhood would use.

They have that, they have the SoFi Money which is their checking and savings alternative account, a ton of products. The growth of products is growing even faster than their user base, which shows how well this cross-selling into their ecosystem is doing. Number of products has grown 123% year over year. All the numbers look fantastic. If I scroll through this whole thing, Galileo is their financial technology platform. They essentially let other businesses use a part of their banking infrastructure to offer products and services to their club's customers. That has grown tremendously 79 million customer accounts use Galileo as their platform. A lot of great numbers here. The lending products I mentioned, they started out as primarily a lender, which is why lending growth is slower. Financial services are just getting ramped up. Look at this parabolic growth chart on the right, 243% growth year over year. That's not because of COVID. That's because they're rolling out a ton of new financial service products. That's not just COVID growth. Revenue is doing great. This is a profitable business on adjusted EBITDA basis, not on an absolute basis.

Why did the stock get hammered so much? The answer, as you might expect for most tech companies is guidance. The guidance wasn't too impressive. Their quarterly loss was a lot more than investors had expected. A lot of these companies have been raising their guidance, SoFi didn't. Nothing terribly concerning. A lot of it is because of the SPAC. The SPAC bubble earlier this year has deflated very much so. Pretty much any company that came from a SPAC has really not done well and SoFi is no exception. I bought shares of the SPAC when it was still IPOE before they announced it was going to be SoFi. I've bought it two or three more times since and I just bought more after this earnings report because I think at the current price, SoFi is an absolute steal based on its long-term potential. This has the potential to be the next Square.

Matthew Frankel, CFP owns shares of SoFi Technologies, Inc. and Square. The Motley Fool owns shares of and recommends Bitcoin, SoFi Technologies, Inc., and Square. The Motley Fool has a disclosure policy.

Stocks Mentioned

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