I’m a big fan of fintech, so I’ve been watching SoFi Technologies (NASDAQ:SOFI) pretty closely. While I’ve not yet pulled the trigger to invest, the roughly 30% sell-off in SOFI stock over the past three weeks has shares trading at a level that’s almost too good to pass up.
I got into the fintech space a few years ago when a buddy asked me to start contributing articles to a bank association’s website. Those articles were a lot of fun to write, and I learned a lot in the process. One thing I learned is that there’s a huge fear of – and a lot of respect for – Amazon (NASDAQ:AMZN) and how the retail giant has changed consumer habits.
Banks with brick-and-mortar operations are really concerned about the customer experience. They know younger customers are accustomed to Amazon’s interface and service and have come to expect it from their banks. Convenience and simplicity are at the top of their list of must-haves. If banks can’t deliver, there’s no way they’ll be able to get those customers into products like auto loans, mortgages and investment accounts.
Delivering an Amazon-like experience is where fintechs like SoFi excel, giving them a leg up on some of the traditional banks. And it’s why I think SOFI stock has some real potential.
SOFI Stock at a Glance
SOFI stock began trading publicly on June 1 after it completed a reverse merger with Social Capital Hedosophia Holdings Corp. V, a special purpose acquisition company. Shares hit a high just below $25 the following day. But it was a cruel summer for SOFI stock, which bottomed out below $14 in mid-August. By mid-November, SOFI stock briefly managed to get back above $24 before turning sharply lower.
SoFi’s second-quarter earnings, reported in mid-August, were somewhat of a disappointment. However, its third-quarter earnings report more than made up for it. Adjusted revenue for the quarter came in at $277.2 million, up 28% year over year and topping estimates. The company also reported a much smaller-than-expected loss of 5 cents per share. Analysts were expecting a 14-cent per-share loss.
Perhaps, the most significant point in the earnings report was the growth in SoFi’s lending division. With adjusted revenue of $215.5 million, the lending division accounted for more than three-quarters of total revenue. And it grew at 21% year over year.
SoFi also raised its full-year guidance, saying it now expects to generate more than $1 billion of revenue and adjusted EBITDA of $28 million to $31 million.
Cross-Buying is Key for SoFi
One thing that stood out to me on the company’s earnings call accompaning the report was the following quote from SoFi CEO Anthony Noto:
The third quarter was a record for cross-buy products with SoFi Money, SoFi Invest, and SoFi credit card first members accounting for 73% of total cross-buying, demonstrating that as the top of our final scale increases, so will cross-buying and the benefits of our financial services productivity with strategy.
Here’s why I think that quote is so important…
Banks do their best to capture a customer’s full life cycle. They want you to open a savings account as a child, followed by a checking account when you get your first job. They want you to use them for your auto loan and then your home mortgage. Finally, they want to handle your retirement accounts.
It was easier in earlier generations for banks to do that kind of business. Their brick-and-mortar presence meant you could build a personal relationship with your banker. You knew who to go talk to, face-to-face, to get what you needed.
Today’s Amazon-centric consumer isn’t like that. Amazon taught consumers they don’t have to go into a store. All they have to do is type the name of the product they want into a search field and they can have it delivered within a day or two. Consumers are willing – and perhaps eager – to forgo face-to-face interaction in the name of convenience.
Additionally, Amazon does a great job at suggesting products based on your browsing history, has a great chat and customer support function, and has a suburb interface.
As an online bank, SoFi needs to replicate that user experience if it has any hope of selling multiple products like SoFi Money, SoFi Invest and SoFi credit cards. Therefore, the company’s success doing just that in the third quarter is notable.
The Bottom Line on SOFI Stock
SOFI stock is one of my favorite banking stocks, but it’s a crowded field. There are plenty of online banks and traditional companies battling in the same space. You also have companies like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) making some significant inroads.
In the coming months, SOFI stock should get a boost from the end of the coronavirus moratorium on federal student loans. But it may be hurt if the Federal Reserve decides to raise interest rates to combat inflation.
Either way, SOFI stock is one of the most interesting fintech names on the market. Currently priced at a little over $16, I think shares will be impossible to resist if they get close to $15.
On the date of publication, Patrick Sanders 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.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.