To The Moon

SoFi’s (NASDAQ:SOFI) stock has been declining, and it’s not surprising. Investing in fintech stocks during this time is often considered a tough decision. The tensions between Russia and Ukraine are heating up.

The Federal Reserve is looking to reign in inflation through interest rate hikes on the domestic front. However, considering the positive catalysts on the horizon now is not the time to part ways with SoFi stock.

The financial industry is changing rapidly, and the pace of innovation is increasing. Banks are increasingly using APIs to power their business. They are also looking for new ways to compete with fintech, which offers various products and services.

SoFi is a successful example of a company that has transformed the banking industry by offering customers a “one-stop-shop” financial services platform that includes personal loans, mortgages, savings accounts, and wealth management products. SoFi’s success can be attributed to its innovative business model and focus on customer experience.

One of the biggest pieces of news coming from SoFi was its fourth-quarter earnings report and its recent approval for a bank charter. Both of the announcements were positive catalysts for the stock. This is great news for existing SoFi customers and investors looking to invest in the company.

But shares of the company are still trading at cheap multiples versus their 52-week high. That is why many risk-tolerant investors are drooling at the prospect of investing in this one.

Student Debt Refinancing Volume Returning

Despite the negative market sentiment, SoFi is not making any wrong moves. The overall market machinations are having an impact on every tech stock out there.

Management took several steps to help the company deal with the pandemic, and they have done a great job meeting these challenges. Despite seeing its student loan origination volume drop drastically, the company managed to do well because of a three-business segment operating model. The CARES Act led to lower student loan origination after the virus. The legislation kept a freeze in effect during the pandemic. After that, there have been several extensions, and the latest one ends on May 1.

Lawmakers could push for extensions. However, the pandemic has receded, and things are getting back to normal. Therefore, it is likely that this is the last extension. If that is the case, then the student loan business can return and drive returns in the second half of the year. That is a major catalyst that the company can look forward towards.

Diversifying the Revenue Mix

Interestingly, Covid-19 allowed the company to reassess its product portfolio. In doing so, it managed to power its portfolio with new products. Its Galileo and Financial Services segments proved money-spinners in this regard, and you can make a case that they can outperform the Lending segment in the long run.

Galileo is a payment platform that provides customers with an API. The platform allows merchants to create their own branded payment cards, which customers can use to make payments.

Galileo offers a solution for businesses and consumers who want to avoid the high transaction fees associated with credit and debit card transactions.

Technology Platform segment net revenue for the fourth quarter of 2021 was $53.3 million, which is up 42% from the comparable prior-year period. For the full year of 2021, segment net revenue was $194.9 million, representing year-on-year growth of 102%.

Meanwhile, the company’s financial services segment includes SoFi Invest, Money, Credit Card, and Lantern by SoFi.

The fourth-quarter revenue for this division was $22 million, which was more than five times the total revenue from 2020. This is a significant accomplishment made while building out this segment.

In addition, the company is nearing the closure of its purchase of Technisys in an all-stock deal worth $1.1 billion. This deal will allow the company to grow its user base in Latin America and also improve services in terms of personalized offerings. In addition, the agreement is expected to reduce operating expenses by $75 million to $85 million between 2023 and 2025. As my colleague, Vandita Jadeja said, the purchase is another step toward becoming a one-stop-shop for all financial services.

The Bottom Line

Due to the bearish market sentiment, investors are avoiding fintech stocks. However, it’s important to judge every company on its merits. The broader market issues will impact the price. Ultimately, though, the markets will reward a strong operating model.

SoFi has all the advantages to succeed in the future. They can offer lower interest rates and flexible repayment plans, making their services more attractive than other lenders. Plus, as the end of a federal moratorium nears, it has an additional catalyst that will power its returns through the year.