Further bolstering its moat with acquisitions of a bank and a FinTech infrastructure firm, SoFi is due to go public later this year
Neobanking encompasses online banking without a physical footprint and covers everything a traditional bank would offer and more. Social Finance, Inc. or SoFi, is a neobank that was founded in 2011 by four Stanford graduates looking to offer more affordable student loans. Fast forward to today and you’ll find SoFi covers a broad spectrum of services including mortgages, auto loans, a cashback credit card, insurance products, and an investment platform that allows for trading equities, ETFs, and even cryptocurrency all from the convenience of a web browser or mobile device.
In April of last year, SoFi acquired Galileo, a leading Banking as a Service (BaaS) provider responsible for offering banking APIs to FinTech organizations, for $1.2 billion. Additionally, this year, the company will acquire Golden Pacific Bancorp, for roughly $22 million, to obtain a national bank charter. This will allow SoFi to circumvent external underwriters and make loans that use the company’s member deposits, thereby raising its margins.
When Can I Buy SoFi Stock?
Although this has yet to be confirmed, it is expected to complete its merger with Chamath Palihapitiya’s SPAC Social Capital Hedosophia Holdings V (NYSE: IPOE) on May 28 with the ticker symbol SOFI on the New York Stock Exchange.
Trading is to commence on June 1, but since this is a SPAC, you can purchase shares of IPOE now, which will convert to SOFI once the merger is complete. Valued at $8.65 billion, the unicorn company will have a $21 billion market cap with 865 million outstanding shares; the price per share will fall in the $25-$30 range.
According to its S-1, SoFi expects to record adjusted EBITDA of $27 million this year and is expected to grow that number to $1.18 billion by 2025. Moreover, it expects to earn $1 billion in net revenue this year, up 60% year-over-year (YoY), and projects that number to climb to $3.7 billion by 2025. The company had 1.85 million members as of Q4 2020, up 90% YoY and that number will continue to grow as SoFi continues to offer lower-cost banking services due to its low overhead costs. It’s on track to exceed 3 million members by the end of the year.
In February 2018, Anthony Noto, former COO of Twitter and CFO of the NFL, became CEO of SoFi. His ties with the NFL helped him secure a twenty-year naming deal for the Los Angeles football compound, naming it SoFi Stadium, further expanding the company’s brand. It was under his leadership that the company acquired Galileo, dubbed by many as the AWS of FinTech and the leading BaaS provider on the market.
SoFi’s Growth Potential
The overall North American digital banking market is projected to reach $721 billion in value by 2027. Further, loan volumes are projected to continue rising for the company at a 25% compound annual rate to over $42 billion in 2025. With most Americans using two or more banks, SoFi has a powerful niche as an all-in-one service. This moat provides SoFi with low customer acquisition costs and opportunities to cross-sell its products, thereby increasing customer lifetime value.
SoFi’s outlook, although very positive, comes with caveats as well. There’s already plenty of competition in the FinTech space from the likes of companies like LendingTree, Upstart, and Avant, but the real trouble can come from traditional banks like JPMorgan Chase or Citigroup, who have the financial wherewithal to start or enhance their digital offerings. When it comes to money, people probably feel safer with bigger, more established banks. Moreover, the company’s quality can suffer as it stretches itself too thin by offering such a broad range of products.
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