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This Fintech Stock Could Produce 10X Returns

By Trevor Jennewine and Matthew Frankel, CFP® – Oct 25, 2021 at 6:07PM

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SoFi could be the next Square.

SoFi Technologies (SOFI 6.49%) is a digital financial services provider that offers a range of products from personal loans and mortgages to credit cards and brokerage services. Management values its addressable market at $2 trillion, which puts investors in front of a massive opportunity.

In this Backstage Pass video, recorded on Oct. 14, 2021, Motley Fool contributor Matt Frankel, CFP, shares his thoughts on SoFi's upcoming third-quarter earnings report, scheduled for Nov. 10. He also discusses why this fintech company could be the next Square.

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Matt Frankel: SoFi, Social Finance went public by SPAC earlier this year. Their numbers have just been phenomenal. I think this company could be the next Square, and I'll show you why.

Their membership growth has not really been growing impressively, grown at 113% year-over-year -- which who cares about profits when you have that growth right now? But it has been accelerating. Eight consecutive quarters. Look at that bottom number, year-over-year growth, their growth rate has been accelerating for eight consecutive quarters.

The product growth is also accelerating. Look at the past seven quarters there, 71%, 85%, 89%, 101% -- it's accelerating and accelerating, the momentum is just gaining and gaining. That's a pretty impressive customer base. 2.5 million people is not Square. Square has I think 30 million active Cash App users, a few million more in its business ecosystem. So, the real key here, look at this rate here. So far it started its life as a lender. They made private student loans, they do personal loans, things like that. On the left you can see the growth of their lending products. It's ok; it's been in the teens for the past few quarters. That's not where the growth of the business comes from.

They are building out their other product offerings heavily. They offer an investment platform and they're all very innovative. Their investment platform is one of the few that lets everyday investors participate in IPOs. I think them and Robinhood are the only two that do that. They have their own ETFs. They have one ETF that pays weekly dividends, which is the only one like that I know of. Really unique products that they're bringing out.

SoFi Money is their banking platform. It advances their customers, their direct deposits two days before payday, really cool feature. Those are the financial services products like you see on the right. Look at that growth. I used to be a math teacher and if I was teaching a lesson on exponential growth, that might be one of the charts I used as an example in class. That is an exponentially growing customer base.

If you look at the number right there and compare it to their customer count, SoFi's average customer has about 1.5 products with the company right now, a ton of potential for cross-selling products. Real quick, I'm going to skip all the way down to this. Here's some of their current financial services products. The average customer uses about 1.5 products. Not only is their user-base growing at over 100% year-over-year, but there are also this long list of products -- that is rapidly growing, by the way. The credit card was just launched this year, the investment platform got much better this year that's really gaining traction. So, not only is their user base growing more than doubling year-over-year, but they have the ability to cross-sell all of these products to their existing customers.

Right now SoFi's market cap is about $15 billion. If things go well and this momentum continues, I think it could be at 10 bagger within a decade. But it's one of the ones that I'm watching. But the key is for that growth to continue at that triple-digit pace, which obviously can't be sustained forever, but can they sustain it for a little while longer? That's what I want to know. There are my thoughts on SoFi.

Trevor Jennewine owns shares of Square. The Motley Fool owns shares of and recommends SoFi Technologies, Inc. and Square. The Motley Fool has a disclosure policy.

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