SoFi Technologies, Inc. (SoFi) is an online personal finance company and bank based in the United States. SoFi offers a variety of financial products, such as student and auto loan refinancing, mortgages, personal loans, credit cards, investing, and banking via mobile and desktop interfaces.
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The profits in the future may be dazzling, even though SOFI stock is controversial. There is no denying the polarizing nature of neo-banking company SoFi Technologies. After all, this business aims to change how we think about personal money. This does not exclude SOFI stock from increasing, though.
Investors should expect significant profits in 2023 if the Federal Reserve modifies its course of interest rate hikes and if SoFi Technologies continues to strengthen its financial position. Let us analyze and look in detail at SoFi.
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How does SoFi make money?
SoFi is a unique type of financial institution. The company’s mission is to aid people in managing their money correctly. Their products are designed with customers in mind, giving them the resources required to take charge of their financial destiny.
For many people, getting their money in order means different things. It entails being debt-free for some. Others will finally be able to purchase a property as a result. But whatever it means to the people, SoFi thinks four fundamental ideas can help anyone get started. They are
- Attack debt strategically.
- Have a safety net at all times.
- Put money to work for you.
- Make retirement savings (and other objectives)
The company provides exclusive member advantages at no charge. The company offers to refinance student and personal, home, and private student loans. Securitizations and complete loan sales are the main ways that SoFi generates revenue.
Institutions like pensions, insurance funds, and other asset managers are the buyers in these securitizations. They pay a premium upfront in exchange for possible future cash.
Flows from the loans. Investors’ faith in the quality of their loans by allowing them to profit from securitizations
The company provides loan products to customers at interest rates lower than their present rates. But the rate is higher than their cost of financing, so the company transfers those savings to them. The user saves money on loan payments, and SoFi generates enough money to continue operating.
Is SoFi a good investment and Growth firm?
SoFi Invest does not charge commissions for buying or selling stocks, ETFs, or fractional shares in their active brokerage accounts. Their automated investing service is also free of SoFi management fees. This is their Robo-advisory product, which automatically builds and rebalances portfolios for members.
Instead, SoFi generates revenue through a variety of methods, all of which are common and assist members in avoiding fees:
- SoFi earns interest on cash held in accounts that are not invested. This is accomplished through an FDIC program that also aids in the safety of members’ cash.
- SoFi lends out stock. Borrowers are typically short sellers or investors who bet on the price of specific stocks falling. They compensate SoFi and their partners with a loan cost for the borrowed shares.
- In addition, SoFi makes money by sending customer orders to third-party market makers. This practice is known as “payment for order flow.” Market makers fulfill customer orders, and regulatory rules require them to do so by providing ideal outcomes.
- SoFi Crypto charges a 1.25% markup on each transaction. For example, suppose a cryptocurrency is worth $100. A member would be charged $1.25 if they paid $100 to purchase that cryptocurrency. As a result, in this case, the member would own slightly less than the total value of one cryptocurrency.
- SoFi also earns money from its Exchange Traded Funds (ETFs), which charge annual management fees.
SoFi Money is a cash management account provided by SoFi Securities LLC, a member of FINRA and SIPC. Bancorp Bank issues the SoFi Bank Debit Card.SoFi has partnered with Allpoint to provide customers with ATM access at any of the Allpoint network’s 55,000+ ATMs. When using an in-network ATM, consumers will not be charged a fee. However, third-party fees incurred when using out-of-network ATMs will not be reimbursed.
SoFi provides solid features for cost-conscious investors, particularly those just starting, with a broad range of low-cost ETFs. These newcomers are also more likely to benefit from SoFi’s member benefits, particularly career coaching and interest discounts on student loans.
Is SoFi a good growth stock right now?
SoFi’s stock has dropped more than 66% this year. Aside from financial and economic pressures, investors are concerned about the company’s high stock-based compensation (SBC). SBC (paying workers with company equity) helps associate their interests with the companies. It also results in shareholder equity dilution. SoFi paid $235 million as SBC in the first nine months of 2022, a nearly 45% increase year over year.
However, management has raised its fiscal 2022 guidance twice in a row. This demonstrates SoFi’s strong belief in its business model and its streamlining.
Even after considering President Joe Biden’s student loan forgiveness plan of up to $10,000 per borrower (the average student loan per borrower is $28,950), the expiration of the moratorium on $1.7 trillion in student debt will increase demand for loan refinancing after January 2023.
Investors should expect fluctuations in SoFi’s stock price in the short term. This is due to the Federal Reserve raising interest rates for the sixth time in 2022. However, given the company’s long-term prospects, retail investors should consider purchasing at least a small position in this fintech stock.
Is SoFi stock an ideal long-term investment?
SoFi Technologies Inc. had a $4.8 billion market capitalization as of November 21, 2022. This led to its placement in the 83rd percentile of consumer lending companies.
Due to negative earnings over the last 12 months, SoFi Technologies, Inc. does not have a meaningful price-to-earnings ratio (P/E). SoFi Technologies Inc. has a trailing 12-month revenue of $560.7 million and a profit margin of -77.0%. The most recent year-over-year quarterly sales growth rate was 111.5%. Analysts predict that adjusted earnings per share will be $-0.429 in the current fiscal year. SoFi presently does not pay a dividend.
The consumer lending sector is expected to be flat. Businesses with a prime and wealthy customer base have a better outlook than those that target subprime customers. Furthermore, according to WalletHub’s Credit Card Debt Study, consumers will incur $87.3 billion in new credit card debt in 2021, far exceeding the $48.5 billion 10-year average.
Loan growth is expected to remain high in 2022 as consumers use up their extra savings and government aid continues to be phased out. As net interest income rises, we expect net revenue to grow by 10 to 12% in 2022. Consumer lending is expected to remain flat. Businesses that target prime and wealthy customers turn out better than those that target subprime customers.
However, a turnaround may appear to work. We’ll never get everyone on board with SoFi Technologies, but that’s okay. Investors can still be confident in this daring but rapidly growing company.
Conclusion
SoFi’s revenue and earnings are expected to increase by 35.6% and 75.9%, respectively, in the coming year. The company expects to produce positive earnings per share by fiscal 2024.
Currently, the stock trades at 3.2 times forward sales. That is more than its fintech peers, Upstart Holdings and LendingClub, which trade for 1.8 and 0.9 times forward sales, respectively. SoFi deserves the premium valuation due to its future solid growth prospects and robust business model.