I’ve been searching for opportunities in the fintech space for the past few weeks. I believe a lot of the large-cap fintech companies will be solid investments for years to come. However, it’s unlikely that these companies would reach five- to ten-fold heights in the future given their already large market-caps. However, SoFi Technologies (NASDAQ:SOFI) is a company that fits my criteria for an aggressive growth play.
The company de-SPACed late last year and rode a ton of hype. SOFI stock was trading at a high of $26 as early as February of this year. However like most special purpose acquisition company tie-ups, SOFI stock fell, in this case by 42%, from its all-time highs.
I believe that a lot of the negativity surrounding the stock is largely due to the being associated as a SPAC stock. SPACs in general have been getting a lot of bad press due to the perceived lack of regulation and sweetheart deals for the sponsors. This gives investors willing to examine companies on a case-by-case basis plenty of opportunities.
At the recent price of $17 SOFI stock is a compelling investment.
Digital Wallet Strategy Underpins SOFI Stock
ARK Invest identified digital wallets as one of its big ideas in its 2021 report. These fintech companies focus on innovation by converting users’ mobile phones into personalized bank branches. As mobile phones are ubiquitous in this day and age, fintech companies are seeing rapid growth and are eating into the traditional banking business.
A study published this week by JPMorgan Chase (NYSE:JPM) showed that the financial industry needs to be prepared for legacy delivery approaches to become obsolete considering how many people are using digital features. For example, almost nine out of 10 people are depositing their money at their bank via mobile phone.
And it’s not just deposits, There’s a rapidly expanding menu of digital wallet offerings that have expanded into complex lending and brokerage products.
According to ARK Invest, “digital wallets are valued between $250 and $1,900 per user today but could scale to $20,000 per user, representing a $4.6 trillion opportunity in the US by 2025.” This $20,000 per user figure includes revenue from financial services as well as the potential to become lead generation platforms for offline and online commerce.
There are many companies that are playing in this space , including behemoths Square (NYSE:SQ) and Robinhood Markets (NASDAQ:HOOD). However, most of these companies are hyper-focused on one aspect of financial services.
SoFi takes a different approach as it is a “one-stop” for financial services. The company offers comprehensive solutions to help members borrow, save, spend and invest.
In other words, of the myriad of fintech companies, SoFi is one of the few that is truly leaning on a digital wallet approach.
Membership Has Its Privileges
At the core of the company’s approach is its members. SoFi members can access services such as cash management, budget tracking, credit score monitoring, payments, loan services and many others all in one app. SoFi’s products are all complementary and if used together give a holistic picture of a member’s financial situation.
The fact that SoFi’s product suite is so comprehensive leads to trust and a deepening relationship with the platform. This makes the company’s products very sticky and reduces member churn.
It also makes cross-selling products a lot easier. SoFi has seen an explosion of member growth in the past few years. The company recorded seven consecutive quarters of accelerating year-over-year growth. The latest quarter, Q1 2021, was the company’s best so far with 110% YoY growth.
Investor Takeaway
SoFi is one of the most compelling fintech companies out there. The company, if successful, has the potential to dominate the “winner take most” fintech market. This is due to the fact that it has consolidated multiple services into a single app.
Currently SOFI stock is trading in recent days at a market capitalization of $13 billion. Compare this to the market caps of Robinhood and Square of $42.6 billion and $129.5 billion, respectively. This implies that SOFI stock could be 5-10x in the near future as it acquires more users and moves to higher-margin services.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.
