SOFI

What is SoFi and what does it do?

It started with a focus on peer-to-peer (P2P) lending to help students pay off study loans – hence the name, a portmanteau of “social” and “finance”. 

SoFi Technologies Inc. has since grown into a one-stop shop for financial services, operating entirely through its website and mobile app.

Unlike many financial services institutions, SoFi is not on a mission to help their customers get rich, but rather to give them the financial means to “achieve their personal objectives at each stage of life, such as owning a home, having a family or having a career of their choice.”

SoFi was founded in 2011 by Stanford University business students Dan Macklin, James Finnigan, Ian Brady and former CEO Mike Cagney.

How does SoFi make money?

SoFi makes money from revenue through three business segments: Lending, Technology Platform and Financial Services.

Lending

Through their Lending segment, SoFi offers personal loans, student loans, home loans and loan refinancing to customers – and underwrites them using their own collateral. While SoFi earns interest on these loans, the bulk of revenue comes from bundling loans and selling them on to larger financial institutions such as pension funds, insurance funds and asset managers.

Lending accounted for 74.48% of SoFi’s total revenue for FY2021.

Technology Platform

SoFi’s Technology Platform segment provides investment products that earn revenue by collecting brokerage fees on stock, ETF and crypto trades, payment network fees, enterprise service fees, equity capital markets fees and net interest income. SoFi also earns fees from lending out shares for the purpose of short selling.

Technology accounted for 19.65% of SoFi’s total revenue for FY2021.

Financial Services

Through their Financial Services segment, SoFi offers consumers auto, life, homeowner and renter’s insurance. SoFi partners with larger companies to facilitate insurance and spread risk. It earns revenue through referral fees each time a newly referred customer signs up with an insurance partner. Lastly, through its debit account and credit facilities, SoFi also collects fees on credit card transactions and interest on deposited cash.

Financial Services accounted for 5.85% of SoFi’s total revenue for FY2021.

What type of stock is SoFi?

SoFi is a technology stock that trades on the NASDAQ. The company specialises in providing digital financial services.

Who owns SoFi? 

SoFi’s top shareholders are mostly institutional and include SoftBank Group (10.47%), Vanguard Group (5.86%), T.Rowe Price Group (3.87%) and BlackRock (2.45%). 

Other individual shareholders of note include Galileo Financial Technologies’ CEO, Clay Wilkes (4.68%) and former Chairman of Virgin Galactic, Chamath Palihapitiya (2.49%).

Is SoFi profitable? 

SoFi’s revenue has consistently grown from US$404m in FY2019 to US$621m in FY2020 to over US$1.0b in FY2021. Despite all this, SoFi remains unprofitable. 

By their own admission, SoFi generated negative cash flows for nine whole months in FY2021.

The report from SoFi also states they require “substantial liquidity to fund our current operating requirements, which primarily include loan originations and the losses generated by our Financial Services segment.”

SoFi’s free cash flow sits at negative US$1.4b.

Is SoFi a good investment?

Investor sentiment on SoFi is mixed. 

Some investors are bullish as revenue continues to grow. However, since SoFi continues to struggle with earning a profit, many investors have thrown the stock into speculative territory.

Over the 12 months to March 2022, the SOFI stock price has dropped over 60% from a high of US$24.95 to a low of US$7.74.