Social Capital Hedosophia Holdings V (NYSE:IPOE) stock is well off its highs since announcing it would take banking app company SoFi public through its special purpose acquisition company (SPAC).
The deal values SoFi at $8.65 billion but you can still get SoFi stock before the deal closes by buying IPOE stock.
SoFi is short for social finance. It got its start in student loans but has since branched out into other areas of finance and insurance, even brokerage. It aims to become an all-in-one finance app that takes on real banks. In fact, it has just bought a real bank, Golden Pacific Bancorp of Sacramento.
You can get in on the ground floor of SoFi through IPOE stock, but do you want to?
SoFi’s Model and IPOE Stock
SoFi is a great idea that’s growing like a weed. As one booster wrote, SoFi aims to become “the Amazon.Com (NASDAQ:AMZN) of fintech,” offering every imaginable type of financial product through a mobile app.
Noto is the bank’s secret sauce. He’s a former Goldman Sachs (NYSE:GS) partner and National Football League Chief Financial Officer who helped bring Twitter (NASDAQ:TWTR) public, then served as its Chief Operating Officer. He jumped to SoFi in early 2018.
The idea is that app will create a “financial services productivity loop.” A young college graduate might come to SoFi to refinance their student loan, then do all their banking business with them. SoFi has also bought Galileo, a small payment processor that gets it into the virtual credit card business.
A Complex Deal
Buying IPOE stock, however, means you’re buying SoFi blind before you have all the numbers needed to evaluate it. Or how much of it you’re getting.
The private investors are getting a big chunk. Some $2.4 billion will flow into SoFi in this deal, with half of it coming from a private investment group led by Chamath Palihapitiya and another $805 million from the blank check company created to do the deal.
Then there’s the problem with Renren (NYSE:RENN) and SoFi. Renren is a failed Chinese social media company run by Joseph Chen, who has been part of China’s Internet scene for two decades.
Now based in the U.S., Chen tried to hive off Renren’s good investments (including SoFi) into a private company he controlled in 2018. Seth Fischer, an Israeli activist based in Hong Kong, wants to undo the deal.
So far, Fischer has been winning the legal fight, suing Chen on behalf of RENN, with a 10% stake. At issue here is as much as 15% of SoFi, Ian Bezek writes, and if the suit isn’t settled before the SoFi deal goes down buying RENN stock now might get you SoFi at a discount.
The Bottom Line
Many of the SPACs now coming public are money-losing companies that need your capital to keep operating.
SoFi looks different. This looks more like getting into a late funding round alongside some heavy hitters who know their business. Fintechs like SoFi lack both the physical debt of buildings, and the technology debt of mainframes that banks, brokers, and insurers are saddled with. They can do business for less.
IPOE stock looks like a great way to get in on the ground floor of this trend. It is going to leave hundreds of thousands of financial professionals unemployed over the next decade. I also like to bet on the jockey and not the horse. Anthony Noto is a good jockey with a sound plan.
It’s all speculation until we see a quarterly report, but it’s a reasonable speculation.
At the time of publication, Dana Blankenhorn directly owned shares in AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.