The neobank segment is growing at a fast clip, with many companies looking to dominate the space. Surveying this landscape, Jefferies’ John Hecht thinks SoFi Technologies (SOFI) is well-positioned to take share. The 5-star analyst lists several reasons for his bullish outlook.
For one, the company’s synergistic business model, what it terms the “Flywheel,” will continue to drive “significant user growth, product adoption, and margin expansion.”
The Flywheel’s purpose is to help cross-sell its wide array of products, with the end game being to grow the amount of members who make use of the company’s higher-cost products. As a consequence, margins “appreciate” too.
By providing consumers with free access to high-frequency products and lower costs, SoFi “eases consumers into the ecosystem.” Then, with the help of a simple UI/UX, customers are drawn toward ancillary products. Key to this strategy is membership growth, which drives “revenue expansion.” As such, through 2025, Hecht anticipates roughly 46% average revenue growth.
Another reason to get behind SoFi is due to the company bringing “market-leading deployable digital platform for neo/digital banks” Galileo under the fold. SoFi bought the Utah-based payment processor for $1.2 billion in May 2020. “Beyond vertical integration,” says Hecht, “Consolidation between SoFi and Galileo drives efficiencies that result in significant cross-selling opportunities between both customer bases (both B2B & B2C customers).” These synergies will provide even more of a boost to SoFi’s “competitive advantages” and at the same time drive “attractive unit economics.”
SoFi has also set about securing a formal national bank charter. Obtaining it would let the company take deposits from its customers and increase the company’s ability to “both sell and hold loans in order to optimize profitability.” Support from the FDIC is more likely here, says Hecht, due to the company’s acquisition of Golden Pacific Bank. While due to the uncertainty around timing and likelihood, the opportunities arising from the charter are not yet factored into guidance or Hecht’s estimates, the analyst believes its adoption “would serve as a significant enhancement of SoFi’s origination capabilities and funding profile.”
So, Hecht is obviously a fan and initiated coverage on SOFI with a Buy rating and $25 price target. Investors stand to take home ~50% gain, should the target be met over the next 12 months. (To watch Hecht’s track record, click here)
The rest of the Street appears no less bullish. The average price target of $24.5 is only slightly below Hecht’s and implies one-year gains of 48%. Overall, the analyst consensus rates this stock a Strong Buy, based on 4 Buys vs. 1 Hold. (See SOFI stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.