Fintech is no longer just a trend, but the future standard for finance. Because of their tech-savvy customer base, many major companies persist in investing in financial technology structures. SoFi Technologies (NASDAQ:SOFI), an early all-digital bank, has garnered investor interest for its unique offerings and SOFI stock may yet benefit
SoFi stock falls into a unique category, where achievements are met with skepticism. It transitioned from online lending to banking, achieving profitability, yet faces persistent short selling pressure.
Despite solid support at $6.80, future growth is critical, with its internet-only model potentially reducing customer acquisition costs.
Moreover, the company provides a range of financial products, ensuring high customer retention. With various banking and finance segments, it offers competitive rates as a digital bank with lower overhead costs.
Standing Out in Fintech
The era of fintech disruption has grown, highlighting distinctions between startups and established entities. SoFi, an all-digital bank without physical branches, focuses its investments on top-tier digital experiences.
Targeting young professionals and students, SoFi tailors its services to a tech-savvy demographic, attracting high-quality customers each and every quarter.
Most deposits in SoFi Money accounts come from direct deposit, signaling a robust revenue stream from employed members.
SoFi’s technology platform segment, offering banking-as-a-service, continues to drive the company’s growth. Acquiring Galileo and Technisys, SoFi continues to provide back-end banking infrastructure for other fintech players in this space.
Given the segment’s revenue grew 21% to $94 million in Q1, with contribution profit doubling to $30 million, there’s a lot to like about this current setup.
SoFi aims to be the “AWS of fintech,” projecting 20% revenue growth in 2024. If this metric can be achieved, it’s possible the market is underestimating SOFI stock at current levels.
The Bearish View
SoFi’s stock doubled in 2023, but dropped 30% this year due to concerns about its lending business’s slowing growth. Despite a strong quarter, investors are still concerned about declining lending revenue and EPS dilution from debt-to-stock conversion, while the company’s management team focuses on non-lending segments.
Concerns are also becoming apparent regarding credit quality amid what appears to be increasing consumer weaknesses. With a $15.6 billion personal loan portfolio and a net charge-off ratio of 3.45% in Q1, up from 2.97% the previous year, ongoing consumer weaknesses may impact SoFi’s loan book and profitability.
Moreover, while lending remains significant, it’s diminishing in importance for overall growth, as evidenced by a 2% decline in lending segment revenue in Q1 and projected full-year revenue decline of 5% to 8%.
SOFI Stock is Still a Long-Term Winner
SoFi labeled this year a transition period, signaling potential volatility. Conservative or short-term investors might avoid SoFi stock. Yet, as a fast-growing, relatively young company, SoFi expands its deposit base and technology platform revenue, vital for long-term growth.
SoFi connotes to see solid acceleration in terms of its member acquisition and product adoption, demonstrating profitability.
Despite stock decline, its resilient model and growth potential stand out. Management’s adept handling of the lending business in challenging economic conditions suggests promising prospects for the non-lending sector through its technology platform.
With a price-to-sales ratio of 3-times, SoFi stock appears promising for patient investors with a long-term outlook.
On the date of publication, Chris MacDonald did not hold (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.
