Few stocks in this market get so much love and deliver so little in return as SoFi Technologies (NASDAQ:SOFI). I plead guilty to that. I bought into the hype back in 2021, and I’m still in the red. But almost half the analysts at Tipranks who still follow SoFi have the buy light on SOFI stock.
I’m not giving up. SOFI stock has a strategy, and it’s executing on it. When it delivers on it is another question.
Banking and Outward
As I said last month, SoFi today is a bank masquerading as a fintech.
A quick look at its third-quarter report tells the tale. SoFi brought in $470 million during the period from interest. Its $498 million of non-interest income includes $103 million in loan origination and sales revenue, plus $9 million from loan servicing.
SoFi has been emphasizing its banking services in its ads. It’s drawing deposits with 4.5% interest to build loyalty among young customers. Its ads take full advantage of its stadium naming rights, bought before the stadium was built. That may be the best deal CEO Anthony Noto has made.
This is Phase One of the company’s strategic plan. It’s building a brand name much bigger than the actual business.
What Comes Next?
Noto was clear in discussing the following steps on his conference call.
SoFi is “still losing quite a bit of money” on its investing product and credit card offering,” Noto said. The hope is that banking loyalty will now drive customers to the credit card and investment side of the house.
This side has tremendous potential, which I described last week. The investment side of the house is a clone of Robinhood Markets (NASDAQ:HOOD). SoFi has been the better stock in 2023, up 73%, while Robinhood is up just 16%.
Getting personal loans turned into securities with help from Blackrock (NYSE:BLK) aids with differentiation. Robinhood wants to “get the man.” SoFi wants to be where the following “man” banks. SoFi aims to build a cadre of investors, while Robinhood caters to traders.
Guess which group delivers better long-term growth?
Waiting For the Turn
There is a third leg to the business: the brokerage software SoFi bought through Galileo and the banking software it bought with Technisys. These are being augmented by Konecta, a bot for customer service, and a Payments Risk Platform for detecting fraud.
It’s when these operations start delivering that you’ll see the natural turn in SoFi stock. During the last quarter, technology operations grew just 4%, doing $87.6 million in business. SoFi can help any institution offer banking services, brokerage services, or both. Better times will bring a rush of non-bank players into banking, which SoFi can sell to. Why couldn’t insurers, private equity groups, or big retailers expand into financial services for their most prominent investors or best customers? SoFi will make that easy.
Waiting For the Turn
Noto insists that SoFi can become one of the 10 largest financial firms in the U.S. That’s a position recently held by Citigroup (NYSE:C), with a market cap of $80.8 billion.
In other words, Noto wants to deliver investors a “10-bagger,” a 1,000% gain, from where SoFi is here. How fast SoFi can move depends on the economy. We must clear two wars for that to happen.
But SoFi has the name, it has the tools, and I still think it has the leadership to succeed. When the skies clear, I’m betting SoFi will outperform its peers. But there’s still no rush. Just get in before the weather starts to change.
As of this writing, Dana Blankenhorn had a LONG position in SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter https://danafblankenhorn.substack.com/.