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When I think fintech, I think PayPal Holdings Inc. (NASDAQ: PYPL) and Square Inc. (NYSE: SQ).
But with valuations topping $300 billion and $100 billion respectively, it's time to look for the next fintech winner.
SoFi Technologies Inc. (NASDAQ: SOFI) could be just that. The fintech company seeking to revolutionize people's personal finance promises to be an investing gem.
After its first quarterly results since merging with SPAC Social Capital Hedosophia V, Sofi stock fell 20%. But that could actually be good news for investors.
So is it worth buying SoFi while it's at a bargain? Let's take a look...
How SoFi Is Different
This mission-driven company has set out to limit our country's financial illiteracy and help users reach financial independence. It's developed a personal banking platform that provides features to help users meet their personal financial needs.
This financial education aspect targets things lacking in our education system at every level. And it's appealing to a younger generation of users. People are coming out of high school and college with very little knowledge of how to manage their finances, pay bills, limit borrowing, and save money.
SoFi bridges that gap, earning immense customer loyalty in the process.
What started as a student loan lending business has evolved into a finance super-app. Users can pay down student debt, get mortgages, apply for loans, invest in the stock and bond market, and be engaged with their finances.
SoFi's unique vision is to bundle all of a consumer's personal finance needs into one app, and it's well positioned to grow in a market that represents trillions in opportunity.
The ultimate goal is to do in banking what Amazon has done in retail. So far, users are responding positively. And that could fuel the Sofi stock forecast for 2025.
User Growth and Fueling Consumer Loyalty
Year-over-year growth is up 113% to over 2.6 million in the company's eighth consecutive quarter with accelerating membership. That's just one sign that the app resonates with consumers.
Sofi's user base is also incredibly loyal, and engagement is fantastic. In fact, before the pandemic, users had member meetups in a lot of cities, building a community aspect of the business that simply doesn't exist in banking.
User growth and loyalty is especially essential to SoFi's business model for the array of products it offers through the app.
For example, a user may join SoFi to refinance a student loan. But then they may decide to open up a cash or investment account to buy stocks once they've joined.
This cross-selling of multiple financial products is highlighted in the 220% growth of multi-product users from 125,000 in 2019 to 400,000 in 2020. That's estimated to rise again to 775,000 by 2021.
Not only does this grow user engagement, but it's gaining customers at a lower cost, ultimately making the business more profitable.
It also motivates and rewards its users for making smart financial moves with a points-based rewards program. Checking the app, managing your accounts, checking your credit score regularly, and reducing debt are the types of activities that can earn points.
Each point earned isn't just a pat on the back. Points can be turned into fractional shares of stocks, payments on your credit card debt, cash, or you can even convert them into cryptocurrency.
SoFi's platform is building it into a formidable and versatile competitor to traditional banks, mortgage companies, and investment brokerages.
To increase that advantage, SoFi is in the process of applying for a bank charter. Acquiring a bank charter allows it to offer FDIC-insured accounts that would put the company on the same field as giants like Bank of America and Wells Fargo, while still offering more on its platform than its competitors.
The decision on its application is expected in November this year.
Finally, let's get into what the next five years will look like for SoFi...
SoFi Stock Price Prediction
The company that was valued at $5.7 billion in May of 2020. Then, it was valued at $8.65 billion by January 2021.
With more products offered to its users, it's less likely they leave for competitors.
What's the move with its stock?
It's hard to say that SoFi is a "buy now" stock for a couple reasons.
Shares are trading at an absurd valuation. The average price/sales ratio for a tech stock right now is 5.22. SoFi's stock is trading foolishly high at 24.7 times sales.
There's also the problem of competition. Success breeds it and will make it more difficult to continue growing at the current triple-digit percentage rate. Bigger banks are going to adjust and begin offering similar products to keep up with consumer wants and needs.
While SoFi has a loyal userbase, it's simply not big enough to compete with other fintech giants and banks.
This doesn't mean you should write off SoFi all together. The business model is still unique, and its stock has incredible potential; some analysts have gone as far as to say it could 10x by 2025.
Keep an eye on it in the coming months. It'll be worth seeing how the market reacts to its potential approval for a bank charter, or how growth sustains on the app once other banks begin offering a similar set of options.
A more conservative average target high/low for September 2025 should land around $34.56 or $31.60.
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