It's been a rough year in the stock market, especially for fintech investors. High inflation and rising interest rates put investors on edge, ramping up market volatility. The S&P 500 is down 18.2% this year, while the tech-heavy Nasdaq Composite index is in a bear market, down over 26%.
One company feeling the pain is SoFi Technologies (SOFI +1.41%), the fintech that was a hot stock when it first went public in 2020. The stock enjoyed early success, trading up around $28 per share early in 2021. However, it's all been downhill since, with the stock dropping about 76% from its peak.
That drop has some investors wondering if now is a good time to buy SoFi stock. Let's dive into SoFi's business and see what the next few years have in store for this fintech.
NASDAQ: SOFI
Key Data Points
From student lender to a one-stop financial services company
Founded in 2011, SoFi initially focused on helping people refinance their student loans at lower interest rates. The company later expanded its lending to personal and home loans and since then has exploded into a full-service financial company offering credit cards, cash management, and investment brokerage accounts.
The company has done a good job this year, considering that its primary business -- student lending -- completely dried up when the government paused federal student loan interest payments. One reason is that it acquired Golden Pacific Bancorp earlier this year. The move allows SoFi to collect deposits and hold loans on its books for longer to collect more interest income over time. As a result, SoFi's net interest income (NII) increased 111% year over year in the first six months of 2022 to $218 million. The company has also shrunk its net loss from $343 million in the first half last year to $206 million this year.
These two things will be crucial to SoFi's growth in the next few years
SoFi's banking charter will be vital to its growth over the next few years. The company is already leveraging its banking charter to build up its deposit base by enticing customers with a 1.8% annual percentage yield on deposits. It has increased its deposit costs faster than other banks in hopes that it can cross-sell its products to these new customers. The move looks like it's paying off already, with SoFi's member count increasing by 69% from last year.
Image source: Getty Images.
Another critical component of SoFi's growth will be its technology platform, notably its Galileo product, which it acquired for $1.2 billion in 2020. Galileo is a financial services application programming interface (API) and payment platform that provides companies with an easy way to create digital financial products for customers. Some of its largest customers include Robinhood Markets, Chime, Revolut, and Wise.
The experts call this banking-as-a-service (BaaS), and it's an industry ready to explode in growth. According to Allied Market Research, the global BaaS market size was valued at $2.4 billion in 2020, and experts expect it to grow to $11.3 billion, or 17% annually, through 2030.
Galileo's total accounts grew 48% in the second quarter to 117 million, which was the primary driver of SoFi's 85% increase in technology platform revenue in the second quarter.
Here's what analysts are saying
Analysts expect SoFi to keep growing at a good clip, with estimated revenue coming in at around $1.5 billion this year and rising to $3.6 billion by the end of 2025. They also see its earnings per share (EPS) going from a loss of $0.45 per share this year to breakeven by 2025.
The company did an excellent job of expanding its business by adding a banking charter and attracting customers with higher interest rates on their deposits. Next up will be to convert them into recurring customers across its full suite of financial products, realizing its vision of becoming a one-stop financial services company. Its technology offering with Galileo should be another catalyst for growth that puts it on solid footing to take advantage of the growth of BaaS, which is expected to snowball in the coming years.
While the company has yet to turn a profit, its losses are shrinking, and its growth plans make this an intriguing fintech stock with the potential for explosive growth. While I don't own the stock right now, it is one I've added to my watchlist to keep a close eye on.
