Fintech stocks have been hit hard in 2021, with many stocks like PayPal (PYPL 0.64%) and Robinhood (HOOD -1.76%) falling more than 38% off their all-time highs. Even established companies like Block (SQ -1.57%) have fallen 40% off their highs as of this writing.
Popular fintech and lending platform SoFi Technologies (SOFI 0.26%) has been no exception, declining 41% from its record high. It now trades at an all-time low of just 12 times sales. This dismal stock performance is not indicative of SoFi's business performance, however. The company has been seeing lots of growth while making strides to improve its business, turning it into a very appealing stock. Here's why I think SoFi could win big in 2022.
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Growing financial services
SoFi started as a lending platform for consumers to obtain personal and student loans, but it has since become an all-in-one app for consumers to manage every aspect of their financial lives. SoFi now offers investing services, debit and credit cards, and even insurance.
This mix is attracting plenty of customers. SoFi's third-quarter membership had its biggest sequential increase in absolute terms in the company's history, and the platform now has 2.9 million members using at least one service. In the third quarter, the company's member count rose 96% from a year earlier. Although this is somewhat slower than the second quarter's 113% growth, it's still astounding.
What really excites me is that SoFi is clearly focusing on financial services. SoFi's customers use more than 3.2 million financial-services products, much more than the 1 million lending products they use. For example, if one consumer were to use both SoFi Invest and SoFi Money, that would count as two products. Even more impressive is that the financial-services product growth is up 179% year over year, while lending product growth is up just 15% from a year ago.
This is important because financial services offer more reliable revenue streams than lending. With loans, the company faces substantially more credit risk and default risk than it does by simply offering a platform where consumers can invest. The same is true of Galileo, a business-to-business service that provides the infrastructure for things like direct deposit, mobile payments, and account transfers. Galileo is used by large investing platforms like Robinhood, Chime, and others and has grown to more than 89 million accounts. It has seen rapid adoption, increasing its number of accounts 80% year over year in the third quarter. Growth in this segment, along with gains in the financial-services segment, tells me that SoFi's business is becoming more stable -- something I love to see.
Expanding relationships
In addition to rapidly attracting customers in its financial-services and business-to-business segments, existing customers are increasing their use of SoFi products. For example, although customer count increased 96% in the most recent quarter, total products used increased 108%, meaning that its customers were adopting more than one product. In fact, with 4.3 million products, the average SoFi customer uses 1.45 products. This has been steadily improving since the beginning of 2019, when the average customer was using just 1.1 products.
Because of this additional adoption of products and the company's ability to quickly build its brand name, SoFi's net loss is decreasing. The company posted a net loss of $30 million in the third quarter, which isn't pretty but that's down from $43 million in the year-ago period. As the company's brand continues to spread brought on by more customers, this could improve even more.
The risks to a highflier
Risks remain in this business; a big one is exposure to the loan market. The company still makes the majority of revenue off lending, which can be a risky business. I would like to see increasing adoption of Galileo and financial services, neither of which has the credit risk of lending. This can provide stability to SoFi's financials.
If SoFi can continue to do this through 2022, I think it could flourish. The company is seeing strong growth, and the financials show that things are moving in the right direction. Now that it's trading at rock-bottom multiples,I think SoFi has the potential to be a major winner not only in 2022 but in the next five years.
