SoFi Technologies (SOFI) -- if you haven't 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 Dolev, SoFi has potential.
Initiating coverage of the stock with a "buy" rating and a $28 price target that implies a near-85% profit over the course of the next year, Dolev declared SoFi stock "SoFi(ne)," and predicted the company will over the next few years transition from a company that mostly originates mortgages, student, and personal loans, to "a full-fledged mobile-first, super-app neo-bank with in-house next-gen issuing capabilities."
Granted, that's quite a bit of fintech-babble. Here's what it means:
In 2020, says Dolev, SoFi derived 83% of its sales from mortgage originations (offering mortgages to homeowners, and then selling those mortgages to other buyers), from student loans, and from personal loans. By 2025, however, Dolev believes that SoFi will expand its financial offerings to the point that "mobile-first cash management, trading & brokerage, robo-advisory and crypto services" will comprise between 30% and 35% of the company's revenue stream, and "next-gen issuer processing" (essentially, processing consumer payments to merchants) will comprise a further 25% -- reducing mortgages' and loans' share of the revenue stream to perhaps 40%.
SoFi will do this, moreover, not by shrinking the size of its mortgages and loans business, but by growing its ancillary businesses faster. Indeed, the analyst believes that mortgages and loans will grow in the 20% to 25% range annually. It's just that some of the newer business segments might achieve compound annual growth rates on the order of 150%.
How fast can SoFi grow as a whole? In Dolev's view, investors can expect to see revenues at the company grow as fast as 40% annually over the next four years. As the analyst explains, SoFi should be able to achieve such rapid growth rates by encouraging "user engagement, nurturing a flywheel effect of more users taking advantage of SoFi's multiple services driving additional growth." In turn, the analyst believes investors will see "operating leverage" take hold as revenues grow, shrinking losses and eventually delivering profits.
So how big does Dolev expect SoFi to get? The analyst posits that from about $800 million in annual sales today, SoFi will grow more than 3.5x over the next 4 years, reaching $3.7 billion in revenues by 2025. The analyst actually suggests there's a possibility SoFi could grow much faster than that -- potentially hitting $4.4 billion in sales by 2023 -- but let's put that hypothesis on the shelf for the time being.
In the analyst's base case scenario, investors should look for SoFi to approach $1 billion in sales by the end of 2021, then grow 53% in 2022 -- to about $1.5 billion -- and then a further 41% to $2.1 billion in 2023. Dolev is less specific about what he expects to happen in the out years, but by 2023, he already sees GAAP losses shrinking to just $62 million, so it's possible that profitability could emerge as early as 2024 -- and from there, the sky's 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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