SOFI: Huge Potential To Buy!
$SoFi Technologies Inc.(SOFI)$ can reach $25 by year-end.
Here is my SOFI investment thesis: 🧵
1/ SOFI is different from other digital banks.
Most digital banks are front-end platforms that outsource key services like underwriting and banking.
SOFI has its own banking charter.
It offers banking, credit card, investment, and loan products through a single app:
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2/ Customers flock to this value proposition.
It has grown its membership by 52% annually since becoming public in 2021.
Most investors don't like it being a bank, but a banking license provides it with a competitive advantage.
Let me explain:
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3/ Net interest margin (NIM) will expand as the deposit base grows.
Its original volume has consistently grown since it became public.
This segment has become increasingly more profitable for $SOFI as its loan financing shifted from warehouse to deposit.
We clearly see the effect of this as NIM has consistently expanded since it acquired its bank charter in 2022.
NIM will expand even further as older, higher-cost funding gradually phases out, replaced by deposit funding.
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4/ SOFI has massive opportunities for upsells and cross-sells.
Banking clients are high-value clients who tend to purchase several financial products once they get in the door.
The fact that products grew 54% since 2021 while members grew just 52% illustrates the point.
Cross-selling of financial products drives revenue away from capital-intensive, low-margin businesses like lending to capital-light, higher-margin businesses like investing.
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5/ Result? SOFI is becoming an increasingly capital-light business.
In 2021, only 26% of revenue was fee-based, while it reached 47% by the last quarter.
This illustrates that SOFI is not just a bank; it's a true fintech business.
This shift will accelerate even further.
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6/ Loan platform business (LPB) is just starting out.
It created this business last year to drive fee-based growth.
In LPB, SOFI originates the loan to qualified borrowers in its user base on behalf of third parties in exchange for fees.
Zero risk, high fees.
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7/ They scaled LPB very fast.
After launch in Q3 2024, it added $100 million fee-based incremental revenue.
This is just the beginning.
SOFI signed a $5 billion deal with Blue Owl Financials in April in addition to the $2 billion they signed with Fortress Capital in Q4 2024.
LBP will generate $200-$250 million fee-based revenue only from these deals.
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8/ They are bringing back crypto.
RobinHood generated over $330 million in crypto revenue last quarter, and it was 30% of their total revenue.
After the OCC announced that banks can engage in crypto activities, $SOFI decided to get back into crypto.
This is going to be huge.
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9/ Global payments are coming too.
SOFI will use Bitcoin to convert the USD to international currencies.
This is a giant market that is completely fee-based.
10/It may still be undervalued.
Management expected 26% annual revenue growth by 2026 and 20% annual growth beyond that until 2030.
This was excluding crypto.
Now that crypto is coming back and Level-1 Options and global money remittance are about to be launched too, I think it can grow 25% annually until 2030.
This gives us $8.2 billion in revenue in 2030.
Leading digital banks like $Nu Holdings Ltd.(NU)$ have above 20% net margin. Even if we assume SOFI net margin will be just 20%, it'll generate $1.6 billion net income.
At 25 times exit multiple, we will get a $40 billion company. It's valued at $20 billion today.
Given the quality of the company and serious growth potential beyond the forecast period, I think it's a favorable proposition.
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