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Here's My Favorite Fintech Stock Right Now

By Matthew Frankel, CFP® - Oct 13, 2021 at 6:22AM

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There are some interesting stocks to watch going into earnings season; this is one I'm keeping a close eye on.

Innovative financial company SoFi (SOFI 2.66%) has delivered some incredibly impressive growth in recent quarters. And not only has the growth been strong, but it's getting even faster. In this Fool Live video clip, recorded on Oct. 4, contributor Matt Frankel, CFP, discusses why SoFi is the stock he'll be watching closest as we head into earnings season.

Matt Frankel: One that I find really, kind of a fascinating case is SoFi, ticker symbol SOFI. This one went public by SPAC earlier this year. The reason I'm really excited about this one, it's not just because of their recent earnings numbers have been impressive, their recent growth numbers have been accelerating, which is really rare for a company that's growing that fast. Let me name a couple of statistics. SoFi grew its member count at 113% year-over-year in the second quarter. More than doubling.

Not only was that an impressive growth rate, that's the eighth consecutive quarter that that growth rate has increased. In the first quarter it was 110%, in the fourth quarter of 2020, it was 90% the year-over-year growth rate, in the third quarter, it was 74%, and on and on. If that number keeps accelerating, things could get really interesting for SoFi.

The part of their business, there are two main products that SoFi offers. There's lending products, which is how it got its start, they're an alternative lender. Then financial services product, which is a new and by far the more exciting part of the business. This is their investment platform, their money accounts, their credit cards, things like that. That part of the business is growing exponentially. I wish I could share with podcast listeners this chart. But so far if I were teaching exponential growth in a math class, this is the chart I would use to show a real world example of it.

Jason Moser: That's great.

Frankel: It was up to the count of financial services products that customers use was up 243% in the second quarter, 243%, and this is not a small business. This isn't like it went from one to four. Their product count is in the millions. If that growth stays anywhere near that level, it's going to be a really interesting quarter and an interesting couple of years. Because financial services products, we've talked about this in our bank accounts with, I believe, Wells Fargo (WFC 1.92%) for both of us.

Customers don't like to switch those. Once SoFi lands a customer, that's usually years of recurring revenue and a long-term relationship between them. So 243% growth in customers that could stick around for years and years is pretty impressive. They were profitable on an adjusted EBITDA basis. They are still losing money. They've been raising capital handover fist in a good way at a very cheap cost of capital. They're doing this tech trend where they raised $1.1 billion recently in convertible notes that pay 0% interest. They let the buyers convert it to common stock at about 40% over the current stock price. Before there will be any dilution, stockholders would have to win by 40%. It's an incredible cost of capital.

Moser: It is. But also, you don't read too much into it, I guess, but it's certainly a sign that there's a lot of faith out there that what SoFi is doing is working.

Frankel: Yeah. Oh, for sure. There are people who think this is going to be the next 10-bagger in the financial sector. I don't know if I would go that far, but I'm a big believer in the company. I'm a shareholder myself. I've added to my position several times since they went public. This is one that I will really be paying attention to just because accelerating growth is really exciting. Strong growth is great. Don't get me wrong, all the growth companies we follow have impressive growth, but accelerating growth, especially when it's a three-digit number is really impressive.

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Stocks Mentioned

SoFi Technologies, Inc. Stock Quote
SoFi Technologies, Inc.
$5.41 (2.66%) $0.14
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$39.92 (1.92%) $0.75

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