SoFi technologies (SOPHIA) — if you’ve never heard of it — is an $11.5 billion “social finance” company that lost $224 million last year — and $343 million more in just the first six months of this year .
Nevertheless, says Mizuho analyst Dan DolevSoFi has potential.
Dolev started covering the stock with a “buy” rating and a price target of $28, implying a gain of nearly -85% over the next year, Dolev SoFi shares said “SoFi(ne)” and predicted that the company will go beyond moving from a primarily mortgage, student, and personal loan business to “a full-fledged mobile-first, super-app neo-bank with in-house next-gen issuance capabilities.”
Admittedly, that’s quite a bit of fintech gibberish. Here’s what it means:
In 2020, Dolev says, SoFi made 83% of its revenue from mortgages (offering mortgages to homeowners and then selling those mortgages to other buyers), student loans and personal loans. However, by 2025, Dolev believes SoFi will expand its financial offering to the point that “mobile-first cash management, trading & brokerage, robo-advice and crypto services” will make up between 30% and 35% of the company’s revenue stream, and ” next-gen issuer processing” (essentially processing consumer payments to merchants) will comprise another 25% – reducing the share of mortgages and loans in the revenue stream to perhaps 40%.
Moreover, SoFi will not do this by reducing the size of its mortgage and lending activities, but by growing its ancillary activities more quickly. Indeed, the analyst believes that mortgages and loans will grow at an annual rate of 20% to 25%. Only some of the newer business segments can achieve compound annual growth rates of about 150%.
How fast can SoFi as a whole grow? According to Dolev, investors can expect the company’s revenues to grow by as much as 40% per year over the next four years. As the analyst explains, SoFi should be able to achieve such rapid growth rates by “encouraging user engagement, creating a flywheel effect of more users taking advantage of SoFi’s multiple services driving additional growth.” In turn, the analyst believes that investors will see “operating leverage” increase as revenues grow, losses shrink and ultimately turn profits.
So how big does Dolev expect SoFi to get? The analyst states that from annual revenues of approximately $800 million today, SoFi will grow more than 3.5x over the next 4 years and reach $3.7 billion in revenue by 2025. The analyst is actually suggesting that there’s a possibility SoFi could grow much faster than that — possibly $4.4 billion in revenue by 2023 — but let’s put that hypothesis aside for now.
In the analyst’s baseline scenario, investors would have to look to SoFi to approach $1 billion in revenue by the end of 2021, then grow 53% in 2022 – to about $1.5 billion – and then grow another 41% to $2.1 billion by 2023. Dolev is less specific about what he expects to happen in the coming years, but by 2023 he already sees GAAP losses shrinking to just $62 million, so it’s possible profitability already in 2024 – and from there the sky is the limit on how profitable SoFi could become.
For the most part, other analysts are on the same page. With 3 Buys and 1 Hold, the word on the street is that SOFI is a Strong Buy. At $24.38, the average price target brings the upside potential to 60%. (See SOFI stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.