SoFi (NASDAQ:SOFI) stock flagged despite posting record revenue and reaffirming its optimism for short-term prospects.
Management even issued the kind of upbeat revenue guidance for the upcoming year that should have moved the needle. Still, SOFI stock is down 37% so far this year.
SoFi offers lending and investing capabilities through its digital banking app and other services that provide customers with convenience in their financial spending.
SoFi also has a technology platform division, which houses Galileo. Galileo is somewhat different from the other offerings SoFi offers, including SoFi’s fixed-rate loans and mortgages and low-cost credit cards.
The company offers a wide range of infrastructure services that help fintech companies and banks to operate smoothly. The benefits are only limited to what the fintech needs since the software itself doesn’t process transactions independently.
The last time I wrote about SoFi, the fintech had exceeded expectations in the final quarter of last year with adjusted revenue, EBITDA, and EBITDA margins.
After the company reported these stellar numbers, the stock did very well. However, SOFI stock is now cooling off. Therefore, it is an excellent time to invest in this one once again.
SOFI Stock Benefits from Strong Growth in the Fourth-Quarter
The main narrative about SOFI has been bullish recently, with lots of speculation of what will happen in the future.
Too much speculation can be a bad thing, but this one is running high right now as it’s pulled new all-time highs. SoFi ended FY 2021 in the best shape the company has ever been in, chiefly because of strong customer acquisition and accelerating profit growth.
SoFi has millions of members, 523k new people joining the platform in Q4, and 1.61M total new customers at the end of last year.
SoFi’s EBITDA margins and profitability increased significantly in 2021 due to increases in customer acquisition, product adoption and user growth.
SoFi has been able to grow its loan product offering quickly, which has driven its growth rate. Additionally, the company has expanded its platform in recent years.
The company is a major player in the financial services sector through Galileo’s payment platform. It offers small businesses financial APIs and other products to be more competitive when working with international partners. Apps like Galileo continued to grow more and more popular in the past year.
Technisys Acquisition and Its Implications
SoFi Technologies has completed the acquisition of Technisys, which makes up a core banking platform for clients looking for the latest cloud-based companies.
Technisys is a company that has many revenue streams such as software licensing, custom development and implementation fees. Apart from the non-recurring implementation fees, Technisys also has two other ways of making revenue – software licensing and custom development. These are only feasible under multi-year contracts.
SOFI has recently acquired Technisys to shift its lending and fiduciary services on Cyberbank’s platform. With the help of service providers, SoFi is currently reliant on external vendors.
These venders cost a lot of money and take a long time to introduce new products. The trend in the future will be toward self-reliance since they now have AI capabilities in-house.
The deal also provides the opportunity for SOFI to reach Latin America, creating shareholder value, all net positives for the company.
Risks to the Thesis
The major issue of concern for investors is dilution. Technisys agreed to sell its business to SoFi Technologies for 84 million of its shares, or 10% of SoFi’s total share count as of Sept. 30, 2021.
Apart from this, SoFi has been very generous with stock options. High-growth companies generally offer payment options that include equity and bonuses.
Low-growth companies sometimes pay a set salary but will often provide stock units, so SoFi is not alone here. Promoting an entrepreneurial mindset among team members has been shown to improve the entire company’s job satisfaction and retention rates.
The major issue is that these stock-based rewards also affect existing shareholders. Shareholder dilution increases the value of existing shareholders while decreasing the value of other stakeholders.
As the fintech sector becomes more competitive, so do customer churn rates. Most customers are likely to leave because of this issue. Fintechs compete on margins, and there are a lot of them. A new fintech can enter the market by offering different services with lower-margin products or new solutions that are more efficient. Therefore, this can become an issue on a broader level.
SOFI is a Growth Stock for Aggressive Investors
The company showed strong member acquisition at the end of the fourth quarter. SoFi should be of interest to any serious investor.
SoFi has been struggling in the past few months because they’ve seen a recent drop in stock price, and the market is getting tired of growth companies that are not profitable at this stage. However, SoFi’s growth strategy is paying off in a big way. And with the stock trading at a discount, the time to buy is now.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.
