1 growth share poised to win big in 2022
Fintech stocks were hit hard in 2021, with many stocks like Pay Pal (NASDAQ: PYPL) and Robin Hood (NASDAQ: HOOD) fall of more than 38% from their historic highs. Even established companies like To block (NYSE: SQ) have fallen 40% from their highs at the time of writing.
Popular fintech and lending platform SoFi Technologies (NASDAQ: SOFI) was no exception, down 41% from its record. It is now trading at a record high of just 12 times sales. This dismal stock market performance is not, however, indicative of SoFi’s commercial performance. The company has experienced strong growth while making strides to improve its business, turning it into a very attractive stock. Here’s why I think SoFi could win big in 2022.
Growing financial services
SoFi started out as a lending platform for consumers to get personal and student loans, but has since grown into an all-in-one app for consumers to manage all aspects of their financial lives. SoFi now offers investment services, debit and credit cards, and even insurance.
This mixture attracts many customers. SoFi’s membership in the third quarter saw its largest sequential increase in absolute terms in company history, and the platform now has 2.9 million members using at least one service. In the third quarter, the number of members of the company increased by 96% compared to the previous year. While this is a bit slower than the 113% growth in the second quarter, it is still astonishing.
What really excites me is that SoFi has a clear focus on financial services. SoFi customers use over 3.2 million financial service products, far more than the million loan products they use. For example, if a consumer used both SoFi Invest and SoFi Money, that would count as two products. What is even more impressive is that the growth of financial services products is up 179% year-over-year, while the growth of lending products has only increased by 15% per year. compared to a year ago.
This is important because financial services offer more reliable sources of income than loans. With loans, the business faces a much higher credit and default risk than simply offering a platform where consumers can invest. The same goes for Galileo, a business-to-business service that provides the infrastructure for things like direct deposit, mobile payments, and account transfers. Galileo is used by big investment platforms like Robinhood, Chime and others and has over 89 million accounts. It has seen rapid adoption, increasing its number of accounts by 80% year over year in the third quarter. The growth in this segment, along with the gains in the financial services segment, tells me that SoFi’s business is becoming more stable – something I like to see.
In addition to quickly attracting customers to its financial and business-to-business segments, existing customers are increasingly using SoFi products. For example, although the number of customers increased by 96% in the last quarter, the total number of products used increased by 108%, which meant that its customers were adopting multiple products. Indeed, with 4.3 million products, the average SoFi customer uses 1.45 products. This has been steadily improving since the start of 2019, when the average customer was only using 1.1 products.
Due to this additional product adoption and the company’s ability to rapidly grow its brand, SoFi’s net loss decreases. The company posted a net loss of $ 30 million in the third quarter, which isn’t pretty, but it’s down from $ 43 million the year before. As the company’s brand continues to spread with more and more customers, it could get even better.
The risks for an outfielder
Risks remain in this activity; one of the main ones is exposure to the loan market. The business still derives the majority of its income from loans, which can be a risky business. I’d like to see the growing adoption of Galileo and financial services, neither of which have the credit risk associated with lending. This can ensure the stability of SoFi’s finances.
If SoFi can continue to do this until 2022, I think it could thrive. The company is experiencing strong growth and financial data shows that things are moving in the right direction. Now that it’s trading at low multiples, I think SoFi has the potential to be a big winner not just in 2022 but over the next five years.
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 motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.