Cathie Wood is known for her trend-setting tech sector investments, and she has become one of the most-watched investors, since followers watch to see what she'll spot before the market does.
She is firmly committed to tech disruptors, and her company's exchange-traded funds (ETF) sport curated groups of innovative tech stocks.
Unsurprisingly, SoFi Technologies (SOFI 3.18%) holds a significant position in the Ark Fintech Innovation ETF (ARKF 1.55%), which focuses on financial technology disruption. The digital bank continues to electrify the market and launch new, innovative financial products, demonstrating incredible growth and resilience.
SoFi accounts for 3.8% of the fintech ETF, but Ark was selling shares last week. Is this a signal as to how Wood feels about SoFi? And should you follow her lead?
Image source: SoFi.
Why SoFi stock has exploded
SoFi was one of the earlier digital banks to land on the scene. These days, probably every bank has an online portal, but SoFi is completely online and has no branches. While that might not appeal to some customers who want the security of having a bank they can walk into, it's attracting millions of users who prefer robust tech investments over costly real estate. This is a mostly younger clientele, and it's SoFi's sweet spot. The bank targets students and young professionals, people who are used to doing everything with their phone and want that experience for managing their finances.
Management has concentrated its efforts on developing a full platform to meet the needs of this population. Its strategy is to onboard these younger users and grow with them along their financial journeys. Since these users are often just getting started, that creates a reliable long-term revenue opportunity as a user needs more services, like graduating from a student loan to a savings account and a credit card, and then perhaps to an investment account and so on. Marketing costs have been one of SoFi's major expenses, but as it scales and cross-sells new products, it's making more money without adding customer acquisition costs.
Right now, it continues to break records each quarter for the amount of new customers it adds to the platform. Even when this eventually tapers off, it will still have high growth opportunities as these customers age and increase engagement with the platform.
More market share to capture, more disruptions coming
In the meantime, it's adding customers at a fast pace, including 905,000 new users in the third quarter, a 34% increase year over year, and one of the ways it's attracting new business is by adding innovative services.
It recently brought back cryptocurrency trading, for example, which it had to cut out when it got a bank charter due to regulatory measures. Those measures have changed, and SoFi recently relaunched the product. It is the only nationally chartered bank where customers can buy, sell, and trade certain cryptocurrencies straight from their SoFi Money app, using funds in their accounts instead of needing to open a separate account for cryptocurrency trading purposes.
It had also already announced that it's going to offer global remittances, a type of international wire transfer, straight on the app using the blockchain network. Management has committed to launching other blockchain-based products to make money management easy, quick, and cost-effective.
NASDAQ: SOFI
Key Data Points
Right up Cathie Wood's alley
Wood is usually a big fan of these kinds of products, so it's surprising that she was selling SoFi stock last week.
There could be various reasons why she was selling. One is just to free up cash, since she was buying other stocks for the fintech ETF, including DoorDash and Bitmine Immersion Technologies.
Another is that as SoFi stock rises, it's become more expensive. She hasn't sold that much of SoFi, and I wouldn't look at this trade as an indication of lost confidence in SoFi or its opportunities. It's likely to be a bit of both the reasons mentioned. Considering how much SoFi stock has rocketed higher this year, it's a good candidate for selling off a small portion if she needs the money for another opportunity.
Don't forget, she runs an investment company, so her job is to maximize gains, and her style is to take risks. The average investor may be better off finding a great stock like SoFi and holding on to it for many years as it continues to thrive.
