There are certain stocks that get a lot of buzz. Some, like Tesla or Apple, for example, get it for obvious reasons -- they are among the largest companies and biggest brands in the world. Others you may hear a lot about but aren't exactly sure why -- as they might be smaller companies you're unfamiliar with.
SoFi Technologies (SOFI 2.92%) likely falls into the latter category for many people. Maybe you have seen the company's ads or its name on the Los Angeles Rams football stadium. Or maybe you have come across the name on The Motley Fool or in investing publications and wondered, What is all the buzz about? The reasons for the buzz are two things, in particular, that make SoFi stand out among its competitors.
SoFi has made two key acquisitions
SoFi Technologies is a financial technology company, or fintech, that started out in 2011 as a student loan lender. Over the years, it has branched out to offer personal loans, mortgages, banking services, investments, personal finance tools, direct deposits, and other services -- all through its SoFi app. The company went public in June of 2021.
It has made two major acquisitions in the past couple of years that distinguish it from other fintechs and set it on the path to long-term growth.
The first is the acquisition of Galileo in 2020, which gave SoFi a robust banking-as-a-service platform where it provides the technology for other companies and organizations to ramp up their own digital-banking services. In the most recent quarter, this business saw revenue increase 85% year over year as the Galileo platform generated record revenue. The number of accounts using the platform increased 48% year over year to 117 million, from 79 million, through new client acquisition as well as growth with existing clients.
This gives SoFi a revenue stream that most of its competitors don't have, but it also generates opportunities to cross-sell its banking and investment products.
NASDAQ: SOFI
Key Data Points
The other big acquisition, which closed earlier this year, was Golden Pacific Bancorp. By buying this small California bank, SoFi was able to obtain a bank charter -- which gives them a major advantage over non-bank, or neobank rivals. Having a charter gives SoFi the ability to hold deposits instead of partnering with banks to originate loans and sharing revenue. It can also set its own interest rates, where previously it had to set them through its bank partners.
SoFi grew its deposits to $2.7 billion at the end of the quarter and raised its interest rate for depositors to 1.8%. SoFi also set a record for personal loan originations and generated $257 million in revenue, a 55% year-over-year increase.
"As a result of this growth in high quality deposits, we have benefited from a lower cost of funding for our loans. Our deposit funding also increases our flexibility to capture additional net interest margin (NIM) and optimize returns, a critical advantage in light of notable macro uncertainty," CEO Anthony Noto said in the second-quarter earnings release.
And as an online bank, all of the banking, lending, financial services, and investment products can be accessed through the all-encompassing SoFi app.
Is it a good long-term buy?
SoFi has yet to achieve profitability, but it continues to grow its members, or customers, and its products, which are the total number of products and services that members use, as well as its revenue.
In the second quarter, it added 450,000 new members to give SoFi 4.3 million in total, which is 69% more than a year ago. It also added 702,000 new products in the quarter, for a total of 6.6 million. That is up 79% from a year ago.
The net loss was about $96 million in the quarter, which is significantly less than the $165 million net loss in the second quarter of 2021. The company adjusted up its revenue and EBITDA guidance for the full fiscal year and gradually moves toward profitability, largely due to the growth generated by these two acquisitions.
The stock price is down about 61% year to date as of Sept. 16, but there is just too much growth potential here to ignore. And its multiples are all pretty reasonable, given its huge revenue growth, as it has a price-to-earnings (P/E) ratio of 10, a price-to-sales (P/S) ratio of 4.6, and a price-to-book (P/B) ratio of 1.1.
As we are likely entering a period of macroeconomic slowdown, don't expect meteoric growth from SoFi's stock any time soon. However, SoFi has the makings of a stock with lots of potential in the long term.
