➡️ This is a step-by-step stock review to determine if SoFi (SOFI) stock is a good buy. In this article, we’ll help you complete a 4M checklist. The 4Ms include the MOS (Margin of Safety), Meaning, Moat, and Management.
Table of Contents
➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition.
- In 2011, Mike Cagney, Dan Macklin, James Finnigan, and Ian Brady, four students who met at the Stanford Graduate School of Business, founded SoFi which is short for Social Finance. The original purpose of the platform was to help provide more affordable options for students to fund their education.
- In 2011, the pilot program was the lending of $2M to 100 students for about $20K per student.
- In 2012, SoFi raised $77M, led by Baseline Ventures with participation from DCM Renren.
- In 2013, SoFi announced it had raised $500M in debt and equity to fund and refinance student loans. The total funding amount came from $90M in equity, $151M in debt, $200M in bank loans, and the remaining capital from alumni and community investors.
- As of 2013, SoFi had funded $200M in loans to 2,500 borrowers at the company’s 100 eligible schools.
- In 2013, SoFi announced a deal with Barclays and Morgan Stanley to create a bond-backed peer-to-peer student loan product which is the first securitization of student loans.
- In 2014, SoFi raised $80M in a Series C round led by Discovery Capital Management with participation from Peter Thiel, Wicklow Capital, and existing investors. The additional funds were raised to expand the footprint of the company’s student loan refinancing business and expand into new products like mortgages and personal loans.
- In 2015, SoFi raised $200M with Third Point Management. That same month, the company officially began offering personal loans. At this time, they were offering mortgages in 20 US states, up from 10 in 2014.
- By 2015, SoFi had funded more than $2B in loans. To celebrate its $2B milestone, SoFi announced a contest, #2BillionTogeter, to pay off one of its customers’ student loans.
- In 2015, former SEC Chairman Arthur Levitt was added as an advisor.
- In 2015, SoFi raised $1B from SoftBank.
- In 2016, SoFi became the first online startup to receive a triple-A rating on Moody’s.
- In 2016, SoFi launched SoFi at Work, an employee benefit program to reduce student debt and build financial wellness.
- By 2016, SoFi had funded more than $12B in loans with 175,000 members.
- By 2017, SoFi raised $500M from Silver Lake.
- In 2018, CEO Mike Cagney announced he would resign due to allegations of sexual harassment. Anthony Noto, who previously served as COO at Twitter, joined SoFi to lead as CEO. Michelle Gill, who previously worked at TPG and Goldman Sachs, joined SoFi to lead as CFO.
- In 2019, the FTC prohibited SoFi from misrepresenting to consumers how much money consumers will save or have saved by using its products unless reliable evidence was provided.
- In 2019, SoFi raised $500M from Qatar Investment Authority.
- In 2019, SoFi inked a 20-year deal with two NFL teams, the Rams and Chargers.
- In 2020, SoFi acquired Salt Lake City payments firm Galileo for $1.2B. Galileo is a company and platform that helps FinTech companies move money.
- In 2021, SoFi merged with a SPAC to go public at a $9B valuation.
- In 2022, SoFi received approval from the OCC for a national bank charter.
- In 2022, SoFi purchased Gold Pacific Bancorp for $22.3M. This allowed SoFi to hold loans for investments as opposed to selling them to outside investors.
- In 2022, SoFi acquired Technisys for about $1.1B. Technisys compliments the Galileo acquisition back in 2020. Together, they serve enterprise FinTechs and help make the banking experience better for consumers.
➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this step for us automatically. A stock is either classified On Sale (Potential Buy), Watch (Hold), or Overpriced (Potential Sell). The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make. To determine if a stock is a definitive “Buy” or “Sell”, it’s wise to complete a 4M checklist.
- Summary: Watch
- Score: 39/100
- MOS: 90%
- Share Price: $9
- Fair Value: $35
- Revenue: $1.57B
How does SoFi make money?
➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.
SoFi serves customers in the US, Hong Kong, China, Singapore, Japan, and Australia.
SoFi’s business model is broken into three categories:
1. Lending
- Personal loans
- Student loans
- Home loans
2. Technology Platform
- Galileo – Enterprise software platform that helps FinTech companies move money from one location to another. Some of the customers include H&R Block, Monzo, dailypay, T.RowPrice, lili, MoneyLion, and BlueVine.
- Technisys – Enterprise software platform that helps traditional banks transform to digital. Some of the features include digital onboarding for consumers, retail banking for consumers, commercial banking for institutions, savings accounts, checking accounts, and budgeting tools for consumers. Some of their customers include HSBC, Itaú, Original, Rellevate, TABbank.
3. Financial Services
- Checking accounts
- Savings accounts
- Credit cards
- Debit cards
- IPO investing
- Stock trading
- ETF trading
- Crypto trading
- IRAs
- Fractional shares
When it comes to lending, revenue is generated in three different ways:
- Origination fees – When a consumer or business takes a loan, a .5% – 1% origination fee is added to the total loan price.
- Interest rates – This is the most popular way lenders make money as it produces ongoing revenue for the lender.
- Wholesaling – The primary lender will sell the loan to a third party. The primary lender makes money on the sale and the third party generates revenue through interest.
SoFi makes money from #2 and #3 with #3 being the primary method with their loan products.
With #3, the third parties are large institutions such as pension funds, insurance companies, and wealth management firms.
Here is a closer look at how #3 works.
- Whole Loan Sale – SoFi will group loans together in a “pool” and sell that pool to a third party.
- Securitizations – SoFi will group loans together in a “tranche” which is larger than a pool. Based on the volume, this option may be securitized meaning a wealth management firm can allow investors to buy the product in exchange for a fixed rate of return, which is similar to how a bond works.
Both options allow SoFi to offer a slightly lower student loan interest rate and SoFi tries to save students at least .25% on their student loans. That number doesn’t seem like much but if a student pays their loan over the full term, for example, 20 years, the slightly lower rate can save some money.
Here is a comparison. These are round numbers, not the actual loan rates you can get today. This example is meant to show the cost savings.
This article from nitrocollege.com states that the average student loan in 2022 is about $37,000. We’ll use that number below.
Fixed-rate student loans with a traditional lending institution.
Loan: $37,000
- Term: 20 years
- Interest: 5%
- Monthly payment: $244
- Principle: $37,000
- Interest Paid: $21,604
Fixed-rate student loan with SoFi:
- Loan: $37,000
- Term: 20 years
- Interest: 4.75%
- Monthly payment: $239
- Principle: $37,000
- Interest Paid: $20,384
Over the duration of 20 years, the student can save a little over $1,000.
Online banking is a fast-growing industry with a lot of banking options in the market. The question is, now does SoFo stand apart? Here is their explanation:
- Fast — The majority of the services should be fast! This includes getting a loan, opening an account, buying or selling stocks, uploading a check, getting access to money, paying friends, and more.
- Selection — There is a wide selection of products and features to serve customer needs. This includes competitive interest rates on checking and savings accounts, options trading, and “Pay in 4” (a buy now, pay later product).
- Content — Their financial education, insights, research content, actionable tools, and advice are designed to provide meaningful value for our members and the content is available through their member home feed. Some of the specific tools include digestible financial education, meaningful answers, salient information, advice, credit scores, financial calculators, investment research, and financial news that enhance member loyalty and increase the likelihood that members will use additional SoFi products in the future.
- Convenience — 24×7 access to tools and 9-5 Monday through Friday customer service.
Some of the benefits to customers include:
- No account fees
- No-fee overdraft coverage
- Earn up to 4.4% on savings accounts
- Earn up to .5% on checking accounts
- Earn up to $250 (one-time payment) when you sign up
- 2-day-early-paycheck – get paid early
- Up to 15% cash back at local businesses
- Up to $2M of FDIC insurance
- Get up to $1,000 in stock when you fund a new account
➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.
SoFi (SOFI)
- Summary: Watch
- Score: 39/100
- MOS: 90%
- Share Price: $9
- Fair Value: $35
- Revenue: $1.57B
The top 5 competitors of SoFi
Upstart (UPST)
- Summary: Watch
- Score: 67/100
- MOS: 0%
- Share Price: $53
- Fair Value: $19
- Revenue: $842M
LendingClub (LC)
- Summary: On Sale
- Score: 56/100
- MOS: 81%
- Share Price: $10
- Fair Value: $32
- Revenue: $1.19B
Green Dot Corporation (GDOT)
- Summary: Watch
- Score: 61/100
- MOS: 0%
- Share Price: $20
- Fair Value: $18
- Revenue: $1.45B
PayPal (PYPL)
- Summary: Overpriced
- Score: 44/100
- MOS: 0%
- Share Price: $74
- Fair Value: $80
- Revenue: $27.5B
Block (SQ)
- Summary: Watch
- Score: 50/100
- MOS: 0%
- Share Price: $79
- Fair Value: $76
- Revenue: $17.5B
➡️ Goal: It’s important to understand who the CEO is, what they have accomplished in the past, and how they have helped this company grow. As investors, we should invest in CEOs with humility and integrity. Good leaders typically have stronger cultures, less turnover, and better returns in the stock market.
SoFi CEO Anthony Noto started his career at Goldman Sachs where he worked 9 years and worked his way up to Managing Director. Thereafter he served as the CFO of the NFL for almost 3 years. Thereafter he returned to Goldman Sachs and served as Co-Head of Global TMT of Investment Banking for almost 4 years. Thereafter he went to Twitter and served in roles including CFO and COO for almost 4 years. In 2018 he joined SoFi to serve as CEO.
Some of his career highlights at SoFi include:
- Taking SoFi public in 2021.
- Expanding the company’s service offerings beyond student loans. They introduced personal loans, home loans, insurance, and investing products.
- Driving the acquisition of Galileo to introduce more enterprise revenue.
- Increasing the membership base by utilizing incentives such as higher paying checking and savings accounts and investing capital when you sign up to buy and sell stocks
Glassdoor Rating
- Glassdoor Company Rating: 3.8
- Glassdoor CEO Approval: 86%
➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.
This article from fool.com lists 3 things about SoFi that smart investors know. Those three things are:
- Their revenue growth is very consistent.
- They offer more than student loans.
- Their valuation has been increasing.
This article from fool.com lists 3 reasons to buy SoFi stock right now. Those three reasons are:
- Their business model is more diversified than most people think.
- Their profitability has been increasing.
- Their share price has a low barrier to entry.
➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.
✅ MOS: Although the Score is 39/100, the MOS is 90%. This shows us the overall financials could use some improvements but the upside potential for investors is certainly there. Even if the stock has a Summary of Watch, I’m going to check this box.
✅ Meaning: When SoFi first started as a company to help with student loans, I wasn’t at all interested. First, that’s not a big enough market to get excited and second, it’s student loans which I have no interest in. Those that know me, know that I don’t love the idea of going to college unless you calculate the ROI of your degree and can pay off the loan in just a few years. I won’t go on a tangent but the careers with the fastest loan payment periods include IT and Finance. Anyway, back to the meaning of the business. They made a great call bringing in Anthony Noto to run the company as CEO. He’s the key driver behind revenue stream diversification with products including personal loans, home loans, credit cards, debit cards, stock trading, ETF trading, crypto trading, IPO trading, and more. SoFi has expanded into a mature fintech company.
✅ Moat: Although there are a lot of competitors in this space and I do believe SoFI stacks up nicely against the competition.
✅ Management: Anthony Noto has done a fantastic job expanding the revenue streams and building this company. He’s a great fit for CEO.
I would say this stock is a good pick for your portfolio but I would only allocate a small percentage. The reason is, I want to see the Score increase above 50 which proves this company is improving its overall financial strength.
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
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