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SoFi stock could soon be public, and it won't be through the traditional IPO process.
Now that the S4 has been refiled with the SEC, it looks like the merger between SoFi, the fintech company, and Social Capital Hedosophia Holdings VCorp. (NYSE: IPOE) is back on.
If you want to own this fast-growing mobile-first bank, you simply buy shares of the SPAC and wait for the merger to go through.
Helmed by Chamath Palihapitiya, the self-anointed SPAC legend, Social Capital is trading at around $17 a share.
Should we be buyers before the deal closes?
Why Investors Are Eager for SoFi Stock
SoFi is one of the coolest fintech companies on the planet right now. Founded back in 2011 by some Stanford Business School grads, SoFi is helping its members pay down debts, manage student loans, get mortgages, and just about anything else having to do with personal finances.
Last month, SoFi announced that it had made a deal to buy Golden Pacific Bancorp. Inc. (OTC: GPBI), a small California bank with $150 million in assets. Once the deal is closed, SoFi plans to add $750 million of its own capital and pursue its national expansion plans as a full-fledged bank.
Owning a bank will allow SoFi to make loans using members' deposits, which is a much lower cost of funds than would be available as a non-bank lender.
SoFi's motto is "Get Your Money Right," and it has a whole range of products to help members do exactly that. Having a wider range of services is not enough for SoFi. It also wants to be the fastest way to open a bank account, trade stocks, or get a loan.
SoFi offers pretty much every imaginable financial service in just one app.
You can access savings and checking accounts on the app.
Personal loans and mortgages are available.
So are credit cards.
You can access a brokerage account using the SoFi app.
Last month, it was announced that SoFi would be offering its members the ability to invest in IPOs for companies going public. If it pulls that off, it will be a coup of epic proportions because the IPO game has always been limited to institutions and high-net-worth investors.
SoFi built it, and people are coming.
SoFi uses a membership model that rewards members smart financial steps that get them closer to their goals. You can earn points for checking your credit scores, adding to your savings account, or take other steps the app decides to reward.
Your points can be turned into cash in your savings account, fractional shares of stock in your brokerage accounts, or payments applied to your loan accounts.
SoFi is on track to increase its member count by more than 75% this year and reach 3 million members.
The number of members with more than one Sofi product is expected to almost double.
Last year, SoFi spent $1.2 billion in cash and stock to buy Galileo Financial Technologies, the fintech payments platform. That acquisition is helping SoFi accelerate the pace of technological advances it can use to provide faster, better service to its membership base.
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TOXIC STOCK ALERT
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We love this company.
But to invest in SoFi right now, we need to buy the SPAC before the deal closes.
That's an entirely separate question.
Is SoFi Stock a Buy?
Nope.
Most SPAC deals decline in value after the deal closes.
We think this one might as well.
Shares of Social Capital Hedosophia Holdings VCorp. are currently trading with a price of $17. All the money being put in at the closing table is buying shares at $10.
When the deal closes, Sofi's existing venture capital investors and the other current holders of the private shares will own 74.2% of the company.
The Private Investment in Public Equity Investment Group consisting of some large institutions and Chamath Palihapitiya will own 14.2%.
Mr. Palihapitiya's firm will own about 2.3%.
SPAC shareholders will own just 9.3% of the company.
All of the institutional money from private investment is going in at $10.
The original shareholders paid a fraction of $10 for their stake in the company.
SoFi is losing money this year.
In the presentation for the merger, they talk about adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). That number appears to be generating positive cash flow starting in 2021, and that's helping drive the hype.
Warren Buffett's partner, Charlie Munger, once called EBITDA "B.S. accounting."
On a "generally accepted accounting principles" basis, SoFi won't be profitable until 2023.
Adjusted EBITDA means that the accountants took the B.S. number and massaged it further to say whatever they want.
SoFi is a financial services company we want to own someday. This is just not the time or the price to be a buyer.
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