In the ever-popular fintech industry two new disruptors are shaking things up, but which one is the better investment: SoFi or Marqeta?
Aug. 12, 2021
Whilst SoFi (NASDAQ: SOFI) focuses on the consumer, Marqeta (NASDAQ: MQ) is a business-oriented company, both are exciting disruptors in the fintech industry. These two companies have both gone public in the last four months and have plenty of potential. But which is the better investment?
SoFi: the bull and bear case
SoFi is a company that aims to give people financial independence by providing the tools to help make their money work for them. Originally SoFi started out as a loan refinancing business in 2011, but it has since evolved to offer a variety of financial products all within a single app. The consumer’s ability to borrow, spend, and invest, as well as track their credit score and manage personal finances is what makes SoFi a disruptor in the fintech industry.
SoFi had a brilliant first quarter with adjusted net revenue coming in at $216 million, an increase of 151% year-over-year. The company has three segments that bring in revenue: Lending, Technology Platform, and Financial Services. They brought in $168 million, $46 million, and $6.4 million respectively. In Q2 the average estimate for revenue is around $231 million.
SoFi is also in a period of growth, its acquisition of Galileo last year now gives it further capacity to develop digital payment and card products. SoFi also announced this March that it has agreed to acquire Golden Pacific Bancorp, allowing it to have greater autonomy over the process of underwriting loans. This in itself will be a big money saver as it currently uses a third party.
However, for all its promise, SoFi is not yet profitable. In 2020 it incurred a loss of $317 million, while it is expected that the company will also produce a loss for both 2021 and 2022 too. However, if the company can keep up strong growth, it is predicted that by 2023 SoFi will begin generating profits and continue to grow from there.
Unfortunately, SoFi has also racked up quite a bit of debt. Normally, a companies debts should not exceed more than 40% of its equity; SoFi currently has a debt-to-equity ratio of 159%, making an investment in this company much riskier, particularly as it is still a loss-making business.
Marqeta: the bull and bear case
Marqeta provides modern tools that many companies need to update or transition to digital payment solutions. Additionally, Marqeta sells technology that can detect potential fraud as well as ensure that money is accurately routed and reaches its destination.
Marqeta experienced huge growth in 2020 with just over $60 billion transactions processed by the service, up 176% year-over-year (YoY). Having only recently gone public on the 9th of June, its first day of trading saw its stock pop 13%. However, it has held steady closer to its IPO price of $27 since then.
Marqeta is well known as a part of the gig economy, issuing cards and payment solutions for businesses and gig-workers alike. Payfare in its efforts to expand as a global gig economy financial solutions provider has partnered with Marqeta to achieve its goal of European and Asian expansion. On-demand service use is accelerating and this sector is only going to grow further as we return to busier lives post-pandemic.
The company is also the newest partner of Google Pay, its card-issuing platform will power the new Google Pay balance card. Users of Google Pay balance could previously only use their accounts to send money to other people or spend on Google-owned subsidiaries. Now, with Marqeta’s help, balance users will be able to use their new card at many different merchants across the world. This partnership will give Marqeta an almost limitless runway in terms of growth.
Marqeta is, unfortunately, also a loss-making company, with an incurred loss of $12.8 million in Q1 this year. However, this has narrowed from $14.5 million from the year before. Additionally, Marqeta is operating in an increasingly saturated market with plenty of large players, Stripe, PayPal, and Square are all huge names. Marqeta’s card-issuing niche might shield it from competition for now, but it won’t take long for these other companies to encroach on its space.
So, which is a better investment?
Whilst both these companies are disruptors in the fintech industry, SoFi is a tad riskier due to its debt-to-equity ratio. Marqeta on the other hand is much less risky due to its shiny new partnership with Google Pay which will give it the space and revenue to grow into a fintech powerhouse.
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