When SoFi Technologies (NASDAQ:SOFI) recently posted record quarterly revenue and impressive membership growth, it reaffirmed its strength as a fintech play. SOFI stock has a good chance of reaching new highs in the coming months; the company is gaining new members at a record pace.
New products that appeal to cost-conscious customers will accelerate the growth of its customer base.
SOFI Stock Is Solid
In the third quarter, SoFi’s revenue surged 35.5% YOY to $272 million. Its membership total soared 96% YOY to 2.9 million. The company added 377,000 new members, the second-highest quarterly increase in SoFi’s history. Nearly 80% of its new member growth was due to the introduction of new products by the fintech company, including SoFi Money, SoFi Invest, and SoFi Credit Card.
Customers are happy to use SoFi as a one-stop-shop for their financial needs. When the company issues its 2022 guidance, expect its outlook to exceed investors’ expectations. Last quarter, it did not collect the payments on its student loans. That additional revenue should start flowing next year, boosting its guidance.
Investors are pricing in a portion of the company’s strong 2022 outlook already. SoFi’s shares bottomed at around $14 in the summer and formed a base. They broke out above the $18 level and the stock’s 200-day moving average last month.
SOFI stock could be undermined by profit-taking in the near-term . But selling the shares of a company that’s poised to succeed and grow rapidly over the next five years is a losing strategy. Shareholders who have a small position in the name should consider accumulating shares whenever the stock dips.
Opportunity
SoFi is taking steps to differentiate its products. Among the attributes that its CEO, Anthony Noto. is emphasizing are speed and convenience. He wants SoFi’s products to work better than those of the competition. To the extent that SoFi can accomplish those goals, consumers will utilize more of its products and services.
SoFi wants to add more offerings in each product category. The company estimates that its core earnings have already increased 0.25 percentage points as a result of this strategy.
SoFi listens to what its members wants, so it offers new products that provide what they are looking for. Cryptocurrency is a risky product, so SoFi educates its customers on the risks posed by the asset class. It also encourages members to dollar cost average and to continuously invest set amounts of money.
SoFi’s investors have benefited from the surge of the volatility of cryptocurrency. Instead of buying Coinbase (NASDAQ:COIN), SOFI stock can be used as a way to gain exposure to cryptocurrencies.
They will also get exposure to the fast-growing fintech sector. Conversely, Robinhood (NASDAQ:HOOD) depends mostly on assets under management and trading activity. But Robinhood is also building a cryptocurrency trading system and developing a crypto wallet.
Investors who do not want the volatility of Robinhood’s dependence on stock trading may consider investing in SoFi instead.
Catalyst
SoFi’s bank charter application can become a catalyst for the shares. Noto, SoFi’s CEO, did not indicate when the company expects to obtain the charter. So far, however, it has received constructive feedback from regulators on its application. Once it gets the charter, SoFi’s competitive advantage will rise further, and its customers will want to deposit more funds with it.
Risks
SoFi’s membership growth may slow. It relies on word-of-mouth and modest amounts of advertising. Over the years, it has advertised in multiple media, including television, direct mail, social media, and various digital channels.
If the effectiveness of its current marketing initiatives weaken, its customer acquisition costs may rise.
Fair Value
Six analysts have a 12-month price target on SoFi. Their average price target is $25.58, according to Tipranks.
Conservative investors may want to consider less expensive stocks. Visa (NYSE:V) fell sharply from its 52-week highs recently. It is profitable and generates stable revenue. Citigroup (NYSE:C) trades at a price-earnings ratio in the single digits. Investors can consider holding the shares of traditional credit cards and banks alongside those of SoFi. That will diversify their portfolios.
The Bottom Line
SoFi is posting strong revenue growth each quarter. Its profitability will expand next year and beyond. The firm is in the early phases of accelerating customer growth. Investors looking to buy the shares of a growing fintech should consider SoFi now before it continues its path beyond a 52-week high.
Investors who want to buy the stock at a discount may be too late. Unless the markets drop 15% or more, there is no fundamental reason for SOFI stock to fall meaningfully.
— Chris Lau
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Source: Investor Place