When Robinhood Markets (HOOD 2.18%) went public last July, it had been one of the most anticipated initial public offerings of the year. But the online trading platform that revolutionized and disrupted the industry has had a difficult time since then, and its stock price has plummeted.
It hasn't exactly been an easy road for SoFi Technologies (SOFI 2.14%) either since it went public in June 2021. SoFi is a bit of a hybrid -- part bank, part online broker, part technology company. Which of these two fintechs is the better buy?
1. Robinhood Markets
With its goal to democratize investing, Robinhood disrupted the industry not long after its founding in 2013. It not only popularized free trading, which changed the entire industry, but the ease of its mobile platform brought millions of new investors to the stock markets.
The stock went public on July 29 at about $35 per share and doubled within a week to more than $70 per share. Since then, it has plummeted to its current price, about $10 per share. Year to date, it is down about 42%.
So, while Robinhood disrupted and revolutionized the business, its much larger competitors followed suit, eliminating its competitive advantage and eating into its revenue. Robinhood peaked at 21.3 million active users in the second quarter of 2021 but has seen that number drop the last two quarters to 18.9 million in the third quarter and 17.3 million in the fourth quarter. Also, revenue per user has plummeted from $137 in Q1 of 2021 to $64 in Q4.
Revenue has declined along with it, and the company continues to operate at a net loss. In Q4, revenue dropped from $565 million in the second quarter to $363 million in Q4, with a net loss of $423 million. And revenue is expected to dip lower in Q1 2022 to $340 million.
Since Robinhood caters to new, young, and less-affluent investors, the market drop has had a bigger effect on its customers than it has on the customers of the larger, traditional brokerages. The company also ran into a host of legal and regulatory entanglements stemming from the "meme stock" frenzy its platform helped to fuel the past two years.
2. SoFi Technologies
SoFi Technologies also has an online brokerage, but it is primarily known as an online lender, as it got its start in the student loan market. Now it offers all sorts of loans, including mortgages, as well as banking, investments, and other financial services through its app. It also has a banking-as-a-service (BaaS) business, providing the technology platform to help other companies build out their own digital banking businesses.
Like Robinhood, SoFi has also seen its share price drop since its IPO. It went public on June 1 at about $20 per share, and now it is trading at just over $6 per share. It is down 59% year to date. It had become overvalued and got caught up in the growth-stock correction that started last fall. Currently, SoFi's price-to-sales ratio is around 4, down from a high of 18 last year.
While its stock price has been trending down, its revenue and other metrics have been trending up. In Q4, revenue jumped 67% year over year to $285 million, and for all of 2021, revenue was up 74% to $984 million. However, the company had a $111 million net loss due to higher expenses.
Other positive signs are the growth in members or users. At the end of Q4, it had 5.1 million members, up about double year over year, and the number of SoFi products they used was also up almost double. In addition, the BaaS arm saw the number of accounts it powers rise to 100 million, up from 60 million at the end of 2020.
For 2022, SoFi projects a 55% increase in revenue.
Which is the better buy?
SoFi looks like the better option for a few reasons. For starters, it is growing revenue and users, while Robinhood is stalled out or going in the other direction. But beyond that, there is just more to like about SoFi's growth prospects. It has multiple revenue streams, and all are growing.
It just made a major acquisition in its BaaS technology business, buying Technisys, a banking platform that syncs with its existing Galileo platform that expands and improves what it can offer its customers. SoFi also received a bank charter in Q1, stemming from its acquisition of Golden Pacific Bancorp. It can now offer deposits and no longer has to partner with third-party banks to provide loans, which has the dual effect of saving money and boosting interest income. Ultimately, SoFi has the lofty goal of being a one-stop financial service platform and the Amazon Web Services of fintech.
The pathway to profitability and growth appears much clearer and less challenging for SoFi than it does for Robinhood.