$SOFI- SoFi Stock Analysis:
Company Overview:
SOFI stock is down 44% from their most recent high in December of 2021. However, over the past couple of weeks, SOFI styock has started to reverse from their downtrend, as they have risen nearly 20% since the start of February.
$SOFI — SoFi Corp. is an online platform that provides financial services like loans (personal, student, mortgage etc), insurance products and investment products (ie. $WKLY — SoFi Weekly Dividend ETF) to their American customer base. SoFi aims to be the most convenient financial service in the industry by offering an extensive range of products and services, that can be accessed at any time, on any platform.
Investment Information:
Acquisition of Golden Pacific Bank:
On February 2 nd, 2022, SoFi announced their acquisition of Golden Pacific Bank. Golden Pacific is a California based bank with over $150M in assets. This acquisition was strategic and allowed for SoFi to obtain their National Banking Charter (which they previously did not hold). SoFi is also undergoing the process to change the name of these banks to “SoFi Bank, National”.
The CEO of Golden Pacific Bank will join the SoFi Bank National team as the “President”, utilizing his experience in the industry/region, and his relationship with existing customers to make the change easier. Through this acquisition, SoFi plans to offer an “elevated digital mobile banking experience to serve local businesses and individual customers”. This acquisition was key in working towards SoFi’s goal of capturing the 500M available bank accounts (discussed later).
Growth Strategies:
- Decrease CAC: SoFi actively explores new ways to decrease their Customer Acquisition Costs (CAC). By lowering their CAC, they can afford to offer customers higher rates and/or invest in other projects for the company. Both of these routes will help attract new customers and expand their platform. One of the ways in which they have been able to reduce their CAC is by “cross buying loans”. To my knowledge this involves using the existing collateral from customer loans to acquire other loans in debt markets (this interpretation could be wrong because there is very little information about this on the internet). However, SoFi noted that this method is helping them make $19k more in profit per home loan given.
- Acquisitions: SoFi recognizes the importance of acquisitions in order to meet their goals. Firstly, in order to secure some of the 500M available bank accounts, SoFi needs to acquire existing banks (like Golden Pacific). These regional banks have relatively small customer bases, however these banks trade at very low multiples and can be acquired for a relatively cheap price. Furthermore, SoFi needs to keep acquiring companies like “Galileo” to be continually improving their digital banking platform and digital product offerings. Currently, SoFi’s unique edge is their easy to use (no matter technology competency or age), and all-in-one platform. These types of acquisitions can generate continual improvements for their platform.
- New Customers: As previously stated, SoFi is on a mission to acquire as many customers and bank accounts as possible. SoFi is already doing this through their acquisitions, however there are other routes that SoFi can explore in order to have multiple streams of new accounts flowing in.
Management Team:
This sectioned is designed to give you (the reader) insight into the background of the highest (executive) managers/officers at Asbury. The following people are listed as the highest-ranking members of the SoFi Management Team.
Anthony Noto (CEO): Anthony is the CEO of SoFi and serves on its board of directors. Before joining SoFi, he served as COO of Twitter since November 2016, and as its CFO when joining the company in July 2014. Prior to Twitter, Anthony served for almost four years as co-head of global TMT investment banking at Goldman Sachs. Before returning to Goldman, Anthony spent almost three years as CFO of the NFL.
Chris LaPointe (CFO): Chris Lapointe is SoFi’s CFO. He joined from Uber Technologies where he was the Global Head of FP&A, Corporate Finance and FinTech. Prior to Uber, Chris was Vice President of TMT Investment Banking at Goldman Sachs.
Chris holds an MBA from the Tuck School of Business at Dartmouth College and a Bachelor of Arts degree in Math and Economics From Dartmouth College.
Micah Heavener (Head of Operations): Micah oversees SoFi’s operational staff. He joined SoFi from Citi, where he led Cardmember Services for their U.S. credit card business. Prior to that, Micah held a number of leadership roles within Citi’s Global Consumer Business.
Assaf Ronen (Chief Product Officer): Assaf oversees Product, and Design and is responsible for the strategy and direction of SoFi’s product offerings. Prior to SoFi, he founded and served as VP of Amazon’s Alexa shopping group, creating a new market category for voice assistants. Prior to Amazon, he spent nearly seven years at Microsoft where he served as GM of Skype, and as the GM of identity, access, and security products.
As you can see, SoFi’s highest level management officers all have prior experience in top management positions at very competitive companies. I believe that each member of their board has the necessary experience in order to succeed in their roles. Competitors:
In order to undergo the comparable analysis, we need to get an idea of other public companies that have stocks that rival SOFI stock. These competitors must operate in the same space, operate in similar geographies, be of similar market cap, and have valid financial ratios. Using this criterion, I came up with the following.
- $UPST — Upstart Holdings Inc:Upstart operates a cloud- based artificial intelligence (AI) lending platform. The company’s platform aggregates consumer demand for loans and connects it to its network of the company’s bank partners. Its platform connects consumers, banks, and institutional investors through a shared AI lending platform.
- $DFS — Discover Financial Services: Discover is a digital banking and payment services company in the United States. Their Digital Banking segment offers credit cards and other consumer products and services (loans, investment products, and various registered accounts) to individuals. Their Payment Services segment operates the PULSE network (automated teller machine, and money transfer system); Diners Club International (Payment Network); and Discover Network that processes transactions for Discover-branded credit and debit cards.
- $LC — Lending Club Corp: Lending Club is a bank holding company for LendingClub Bank, National that provides range of financial products and services through a technology-driven platform in the United States. The company provides a variety of loans for both commercial and personal use cases. Lending Club also operates an online lending marketplace platform that connects borrowers and investors.
- $ALLY — Ally Financial Inc: Ally provides various digital financial products and services to their customers primarily in the United States and Canada. Their Automotive Finance Operations segment offers automotive financing services, loans and operating leases, term loans to dealers, and fleet financing. Their Insurance Operations segment offers consumer finance protection and insurance products through the automotive dealer channel, and commercial insurance products directly to dealers. Their Mortgage Finance Operations segment manages consumer mortgage loan portfolio that includes bulk purchases of jumbo and low-to-moderate income mortgage loans. Their Corporate Finance Operations segment provides senior secured leveraged cash flow and asset-based loans to middle market companies; leveraged loans; and commercial real estate product to serve companies in the healthcare industry. The company also offers commercial banking products and services. In addition, it provides securities brokerage and investment advisory services.
Financial Information:
- Q3 2021 Financial Performance (Good): In Q3 2021, SoFi was able to grow their interest income by 6.2%, their net interest income grew by 47% (due to decrease in interest expense) increase their non-interest income by 32% and report a smaller net loss ($30M) than they did in Q3 2020 ($42M).
- Q3 2021 Financial Performance (Bad): In Q3 2021, SoFi’s non-interest expense increased by 24%, an they reported a $30M net loss.
Investment Valuation:
Comparable Analyses:
By comparing SoFi financial ratios to that of their publicly listed competition (listed above in the “competitors” section) I found the following:
P/S Ratio:
Based off of SoFi’s P/S Ratio in comparison to their competitors, $SOFI stock price target based off of P/S is $8.12/share, which would imply a share price decrease of 38%.
P/B Ratio:
SoFi’s P/B ratio (compared to their counterparts) indicates that the SOFI stock price target is $24.40/share, which would imply an upside of 86% in order to reach their fair value.
EV/Revenue Ratio:
SoFi’s EV/Revenue ratio indicates that the SOFI stock price target is $8.14/share, which would translate into a potential downside of 38%.
Comparable Valuation:
Due to the large variability between comparable analyses, I decided to take average the 3 comparable results. By doing this the overall SOFI stock price target is $13.55, which implies an upside potential of 3.5%. I think that the value in SoFi is going to come from their news and financial reporting in 2022, so I think that this 3.5% just signifies that it is undervalued, as opposed to being limited to 3.5% growth.
Investment Plan:
My plan for an investment in the $SOFI stock would go as follows:
- Enter into a position below fair value ($13.55)
- Hold long-term and re-evaluate the position as new data is released (especially their financial reports to see if they continue their growth, or if their growth starts to fall short of expectations).
Originally published at https://utradea.com.
