SoFi: the fintech that will go public through a merger with SPAC Share capital Hedosophia Holdings V (NYSE: IPOE) – it’s a promising start-up. The mobile device company first expects to grow at a rapid pace in the coming years as it expands its banking services and has made a couple of transformative acquisitions to help it execute on its plans.
After being dragged down with other high-flying tech stocks in recent weeks (it’s down 30% from all-time highs at the time of writing this article), I’m ready to start taking a little bite.
Rapid growth ahead, especially for a bank
Banking is a highly fragmented industry and it is common for most American households to have multiple banking relationships. In addition to taking advantage of the general migration to all things digital, SoFi aims to consolidate this by providing multiple services through its application.
The company began offering debt consolidation loans (especially targeting student loan debt). But the company has used its base to launch into other banking needs. The pace at which it has implemented these new services is impressive. In just the last few years, SoFi has dabbled in tracking money and debt, investments, home loans, and credit cards. The investor presentation by the team leading Social Capital Hedosophia Holdings V (led by former Facebook executive Chamath Palihapitiya) stated that SoFi had 1.8 million members.
As it adds new services, SoFi anticipates being able to add many new members. It believes it will reach 3 million in 2021. And along the way, deepening its product portfolio will help it expand those relationships. He anticipates nearly doubling multi-product accounts (like a loan paired with an investment account, for example) from 398,000 at the time of investor presentation to about 775,000 in 2021.
As a result, SoFi believes that revenue will expand from roughly $ 621 million in 2020 to $ 980 million in 2021. It also projects to reach $ 3.7 billion in revenue by 2025, although this is really long-term, and a lot could change between Then and now. (more of that in a minute).
SoFi has made a couple of acquisitions to strengthen its position as a full-service financial services and banking organization. Acquired fintech Galileo (a digital payments automation platform, plus one-sixth owned by investment services company Apex Clearing) last year, and most recently announced that it was acquiring small Sacramento, California-based Golden Pacific Bancorp. , to speed up your application to get a letter from a federal bank (which would make SoFi’s loan operation more profitable).
SoFi will receive about $ 2.4 billion in cash from the SPAC merger, and will allocate $ 750 million of that cash to Golden Pacific to accelerate the nationwide rollout of its banking services.
Taking it easy until there is more information
What about other SPACs that are going through a rough patch? After all, some of the other Palihapitiya companies that have gone public through SPAC haven’t done so well lately. galactic virgin maintains delay test flights, Opendoor Technologies reported a Steepest drop in fourth quarter revenue than expected due to the pandemic, and Clover health estimated less growth than previously forecast by 2021. Will SoFi be the last mistake?
But as with its Palihapitiya-led SPAC peers, SoFi is all about long-term disruption. And even successful disruptors don’t grow in a straight line. Periods of underperformance are expected. The three firms Palihapitiya has previously gone public are not just tech teams. They are using technology to disrupt the status quo of very complex existing industries: travel, real estate, insurance, and healthcare. SoFi is no different. There are many well established banks (thousands of them in the US alone) that will try to do their own digital transformation to avoid SoFi. Sometimes it will be difficult.
However, in five years (the maximum financial forecast provided in SoFi in its presentation), I believe that digital banking will have a greater share of the market than today, and a younger generation of customers will demand that more services be provided in a convenient app. form. With their plan to deliver more services digitally from one place, SoFi’s positioning is fine with me.
But I won’t huddle here. I am breaking one of my basic rules of waiting before buying an IPO stock until after it goes public and after seeing a quarter or two of the results. When I buy, it will be my typical starting position (around 0.5% or less of my portfolio value) with the goal of buying more if positive progress continues on SoFi.
Given the rapid pace at which technology is remaking the world, I anticipate that SoFi will actually deliver the products for years to come. I’m thinking I’d like to get an early start on this one and I’m ready to dive into the water after the recent IPOE share price drop.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are variegated! Questioning an investment thesis, even one of our own, helps all of us think critically about investing and make decisions that help us be smarter, happier, and wealthier.