SoFi Technologies, Inc. (NASDAQ: SOFI) Brings Personal Banking to the Next Digital Level

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This article originally appeared on Simply Wall St New

SoFi Technologies, Inc. ( NASDAQ: SOFI ) is a new two-sided banking platform. The aspirant and the current.

The aspiring side is SoFi’s vision to become the place of choice for a multitude of banking services including: lending, saving, investing, etc. The Current Side is a banking app that focuses on 3 loan dimensions: Student Loans, Personal Loans, and Home Loans. The loan segment accounts for 83% of total revenue, which amounts to US $ 751 million for the twelve months ending in the first quarter of 2021.

SoFi also acts to expand its other segments and particularly promotes internal investment and ETF sections. The investment section offers 0% commissions, but fresh for different types of services are present below the surface. The company is also looking to promote its own ETFs and make it easier for investors to find and invest in them. However, these ETFs do come with fees. reports (a minimum of 0.19 – excluding exemptions) which are higher than industry liabilities estimated average expense ratios to 0.13 for 2020.

There is a long way to go for SoFi to become an integrated and widely adopted digital banking platform.

Given the company’s capacity, SoFi has raised approximately US $ 2.4 billion in cash proceeds from the transaction to fuel growth, market expansion, and the development of new product offerings, as well as accelerate the company’s plans to expand geographically and build the first digital one-stop-shop for members to borrow, save, spend, invest and protect their money.

This is their raised capital, and they must use it to develop their technology and promote the application to a wider market.

Like many start-ups, SoFi also emphasizes that they have people on the team, who are associated with famous companies. In their Press release , they declare:

“As part of the business combination, two new directors, Harvey Schwartz, former President and Co-COO of Goldman Sachs, and Dick Costolo, former CEO of Twitter, are joining the Board of Directors. “

We cannot quantify the potential value of these people on the board of directors, nor does their presence speak of specific actions or guidance that they will bring to the company. Make no mistake, there is potential here, but we haven’t found a way to translate that potential into value.

Shareholder ownership structure

Every SoFi investor needs to know the most powerful shareholder groups. Large companies usually have institutions as shareholders, and we often see insiders holding shares in smaller companies. We generally like to see some degree of insider ownership.

With a market capitalization of US $ 15 billion, SoFi Technologies is pretty big. We would expect to see institutional investors on the register.

In the graphic below, we can see that the institutions are visible on the share register. We can zoom in on the different ownership groups, to find out more about SoFi Technologies.

Check out our latest review for SoFi Technologies

ownership distribution

What does the ownership structure tell us about SoFi technologies?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it’s included in a major index. . In the case of SoFi, it was included in the NASDAQ Composite Index on June 2, 2021.

We would expect most businesses to have certain institutions on the registry, especially if they are growing.

As you can see, institutional investors have a stake in SoFi Technologies. This implies that analysts working for these institutions have yet to be convinced to embark on SoFi’s business model.

Hedge funds don’t have a lot of shares in SoFi Technologies. SoftBank Group Corp. is currently the largest shareholder of the company, with 8.1% of the shares outstanding. In comparison, the second and third shareholders hold around 6.8% and 6.7% of the capital.

Looking at our ownership data, we found that 25 of the major shareholders collectively own less than 50% of the share register, implying that no individual has a controlling stake.

Insiders hold a significant stake worth US $ 1.2 billion or 7.8%. This shows that the success of management is well linked to the success of SoFi, which is a great motivator.

With a 6.7% stake, private equity firms are also able to play a role in shaping corporate strategy.

Finally, the main shareholder is the general public with a participation of 74%. This could mean the company is popular or institutional investors are refocusing for now, either because it lacks traction, analyst coverage, or because there is something holding them back.

Fundamentals

We might get a better idea of ​​the reasons why shareholders choose or abstain from stock by looking at the fundamental performance .

In the graph below, we can see that SoFi is currently making $ 751 million in revenue and is expected to reach $ 3.5 billion in revenue by the end of 2025. Keep in mind that this is analysts’ average estimates and that they are generally revised quarterly.

When looking at the fundamentals, investors should ask themselves: “Does a company deserve the current market valuation? “ .

In the SoFi example, this valuation is currently US $ 15.4 billion, and we should take a moment to assess whether the business model, technology, and performance justify this price.

Conclusion

SoFi is a young technology company that seeks to bring integrated banking closer to the consumer.

We think he has an admirable vision and an interesting business model. However, sometimes it pays to be patient and test management’s business model before getting started.

As Howard Marks says, “being early is sometimes indistinguishable from being wrong” .

It is also important to know that institutions are not quite ready to put their money in the game and that the current ownership structure comes mainly from the general public – this can be a good thing or a bad thing, depending on your philosophy of ownership. ‘investment.

We’re happy to see a good chunk of insider ownership as it signals a shared risk and reward stake with the future of the business.

While it is worth considering the different groups that own a business, there are other factors that are even more important. For example, we have identified 1 warning sign for SoFi Technologies of which you should be aware.

NB: The figures in this article are calculated from data for the last twelve months, which refer to the 12-month period ending on the last date of the month of date of the financial declaration. This may not be consistent with the figures in the annual report for the entire year.

Simply Wall St analyst Goran Damchevski and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material.

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