Everyone is talking about this stock. Is this a good long term option?


Some actions are talked about a lot. Some, like You’re here Where Apple, for example, get it for obvious reasons: they are among the biggest companies and biggest brands in the world. Others that you may hear a lot about but aren’t sure why, as they may be small businesses that you don’t know about.

Sofi Technologies (SOFI 0.50%) probably falls into the latter category for many people. Maybe you’ve seen the company’s advertisements or its name on the Los Angeles Rams football stadium. Or maybe you’ve come across the name on The Motley Fool or in investment publications and wondered: what’s all the buzz about? The reasons for the buzz are two things, in particular, that set SoFi apart from its competitors.

SoFi made two key acquisitions

SoFi Technologies is a financial technology, or fintech, company that started in 2011 as a student lender. Over the years, it has branched out to offer personal loans, mortgages, banking, investments, personal finance tools, direct deposits, and other services, all through its SoFi app. The company went public in June 2021.

It has made two major acquisitions in the past two years that set it apart from other fintechs and set it on a path to long-term growth.

The first is the acquisition of Galileo in 2020, which gave SoFi a robust banking-as-a-service platform where it provides the technology for other businesses and organizations to develop their own digital banking services. In the last quarter, this business saw revenue growth of 85% year over year, as the Galileo platform generated record revenues. The number of accounts using the platform grew 48% year-over-year to 117 million from 79 million, driven by new customer acquisition as well as growth with existing customers.

This gives SoFi a revenue stream that most of its competitors don’t have, but it also generates opportunities to cross-sell its banking and investing products.

The other big acquisition, which was finalized at the beginning of the year, is that of Golden Pacific Bancorp. By buying this small Californian bank, SoFi was able to obtain a banking charter, which gives it a major advantage over its non-banking competitors or neobanks. Having a charter gives SoFi the ability to hold deposits instead of partnering with banks to originate loans and share revenue. It can also set its own interest rates, where previously it had to set them through its banking partners.

SoFi increased its deposits to $2.7 billion at the end of the quarter and raised its interest rate for depositors to 1.8%. SoFi also set a record for personal loans and generated $257 million in revenue, a 55% year-over-year increase.

“Thanks to this growth in high-quality deposits, we have benefited from a lower cost of funding for our loans. Our deposit funding also increases our flexibility to capture additional net interest margin (NIM) and maximize returns, a key benefit in light of significant macroeconomic uncertainty,” CEO Anthony Noto said in the second quarter earnings release.

And as an online bank, all banking, lending, financial services and investing products are accessible through the full SoFi app.

Is it a good long-term buy?

SoFi has not yet reached profitability, but it continues to grow its members, or customers, and its revenue, which is the total number of products and services that members use, as well as its revenue.

In the second quarter, it added 450,000 new members to give SoFi 4.3 million in total, or 69% more than a year ago. It also added 702,000 new products during the quarter, for a total of 6.6 million. This is 79% more than a year ago.

Net loss was approximately $96 million in the quarter, significantly lower than the net loss of $165 million in the second quarter of 2021. The company adjusted its revenue and EBITDA guidance for the fiscal year and is gradually heading towards profitability, thanks in large part to the growth generated by these two acquisitions.

The stock price is down about 61% year-to-date to Sept. 16, but there’s just too much growth potential here to ignore. And its multiples are all pretty reasonable, considering its huge earnings growth, as it has a price-to-earnings (P/E) ratio of 10, a price-to-sales (P/S) ratio of 4.6 and a price-to-book (P/B) ratio of 1.1.

As we’re likely entering a period of macro economic downturn, don’t expect soaring growth in SoFi shares anytime soon. However, SoFi has the makings of a stock with a lot of long-term potential.

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