Key Points:
– Fundamentals well positioned with the recent bank charter
– Potential catalysts: Bank charter, Super Bowl hosted at SoFi stadium
– Sentiment is improving with positive news flow and strong sales
– Technical analysis from Rexman: Can see surge to $14s up till $15s
By StoryTrading
With the Super Bowl on everyone’s mind this weekend, it’s hard to ignore that one of the most widely watched sporting events of the year is at SoFi Stadium in Los Angeles.
Even though SoFi Technologies, Inc. (SOFI) is based in San Francisco, the company put its name on a new stadium located in the world’s entertainment capital. But is SOFI truly ready for primetime?
Our StoryTrading community has been following SOFI closely, and contributor Akhil, recently provided a Zoom update on the stock through the lens of our four pillars: Fundamentals, Catalysts, Sentiment, and Technicals.
Overview
The online personal finance company provides financial products, including student loan refinancing, mortgages, personal loans, credit card, investing, and banking through both mobile app and desktop interfaces. SOFI also owns a platform called Galileo that it acquired for $1.2 billion in 2020.
Galileo’s digital payments platform enables critical checking and savings account-like functionality via its powerful open APIs, providing companies with an easy way to create sophisticated consumer and B2B financial services. The company’s offerings are accessible via mobile, desktop, and a physical debit card. Galileo’s APIs power functionalities, including account set-up, funding, direct deposit, ACH transfer, Interactive Voice Response (IVR), early paycheck direct deposit, bill pay, transaction notifications, check balance, and point of sale authorization, as well as dozens of other capabilities. SoFi Money, the company’s cash management account offering, is already closely integrated with Galileo’s payment platform, including several of its leading account and events API functionalities.
SOFI’s three major revenue streams include the following:
- Lending – Student and personal loans, and home mortgages.
- Galileo – A banking infrastructure/SaaS solution that helps other companies build digital banking products, issue credit cards, and process payments.
- SoFi money – A super app for all kinds of financial advice and transactions for users, including brokerage accounts to purchase stocks.
The Bull case for SOFI:
- It’s growing very fast;
- A lot of optionality in cross-selling;
- Wide moat – high switching cost especially for lending and financial services;
- Young customers want digital first bank/financial services; and
- Large total addressable market ($22 trillion, according to SOFI).
The Risks/Bear case for SOFI:
- Interest rate risk – as interest rates go higher fewer loans may originate;
- SOFI is not profitable and still in growth mode; and
- Legacy banks digitizing their services.
Fundamentals
In the third quarter of 2021, SOFI recorded $270 million in sales with a gross margin of 75 percent. SOFI’s revenues have grown 40 to 100 percent in the last three quarters. The majority of revenue comes from SOFI’s lending business ($215 million) and Galileo ($50 million), while financial services revenue accounted for $12 million in the third quarter of 2021.
SOFI has been successful in growing its business at a substantial rate, even with the U.S. government’s moratorium on student loan payments during the last year due to Covid.
At the same time, the number of SOFI members has achieved a greater than 100 percent growth rate for the last three quarters and continued to accelerate. The number of unique products and services provided to members has also grown at a greater than 100% year-over-year growth rate during the last five quarters. The number of Galileo accounts has grown in the 80 to 120 percent range in the last four quarters. Overall, the growth of SOFI has been accelerating in the last two years, as more people recognize the brand and start using the platform.
SOFI trades at a book value of $5.3. That could be the floor for the stock. However, JP Morgan and other big banks trade at about 1.5 times the book value and hence a realistic floor value for SOFI could be 5.3x1.5 = $8. However, SOFI also has a Galileo business segment that should be valued as a SaaS company and a SOFI money segment as well. With a revenue of $200 million a year that is growing at 80 to 100 percent and a margin of greater than 80 percent a P/S ratio of 10 is a decent multiple and hence Galileo should alone be worth $2B. Hence I believe the floor for SOFI should be $10-11 with a lot of upside.
Catalysts
SOFI recently received approval for a national bank charter, which provides SOFI with better access to cheaper rates of raising capital, as well as more competitive interest rates, providing members with higher-yielding interest in checking and savings. Shares of SOFI were up 20 percent following the news,
SOFI said the charter also enhances its financial products and services to ensure they efficiently meet the needs of members, business partners, and communities across the country, while continuing to uphold a high bar of regulatory standards and compliance.
This year’s Super Bowl location at SOFI stadium in Los Angeles is another potential catalyst that could further enhance the company’s exposure and customer acquisition strategy.
Additionally, the federal government is poised to once again end its moratorium on student loan payments this year, which could benefit SOFI’s student loan business segment.
Sentiment
Sentiment continues to improve quickly for SOFI with steady positive news flow since January 2022. Management has also been buying stock in the open market in the last few weeks. Additionally, sentiment may improve further on Monday morning after masses of people learn about SOFI and SoFi stadium for the first time.
Technicals
StoryTrading consults with technical expert Rexman to identify resistance levels and bull targets. Following is his recent chart and analysis on SOFI..
“Currently it bounced off the lower trend, yellow dots, and if price breaks that yellow line of resistance, this can see a surge to the 14s up till 15s where it will meet trend resistance again (zig zag arrow). But mid-13s need to clear first imo. On the all-time chart, the price has recently bounced off a possible double bottom, though it is NOT a clear long term bullish sign yet,” said Rexman, who you can find on Twitter.
Summary
The StoryTrading community empowers individuals to make the best-informed trade and investment decisions through a holistic view of stocks based on the four pillars of Fundamentals, Catalysts, Sentiment, and Technicals. Analyzing all four pillars together can also help identify key inflection points.
SOFI has a lot of things going right for it – stronger fundamentals with solid topline growth in all segments, catalysts in receiving a bank charter and hosting the Super Bowl, improving sentiment with positive news flow, and technicals that could support a move beyond $13.
The big question is whether SOFI can continue to move the ball down the field and deliver on sales growth and profitability. That's for you and the rest of the market to determine. We'll be here to tell the story as events unfold!
Disclaimer: The Author has a LONG position in SOFI.
