Sofi Savings Account Interest Rate – I began writing this piece from a well-worn bed, stuffed and hangover-turkey familiar sanctuary. After glancing over a packed briefcase this morning, it’s hard not to yearn for such a comforting fortress. Although the figures for the third quarter were great, there were attempts at growth in November and December. It’s especially challenging for fintech companies like SoFi ( NASDAQ:SOFI ) to remain confident and survive in times like these.
I want to tell you that I have a dream – a dream where SoFi CEO Anthony Noto drives an electrified DeLorean with a vintage “GAL1LEO” license plate. He walked out the butterfly doors wearing Solana Stunners and an LA Rams helmet and told me that SoFi is the bank of the future — “where we’re going, we don’t need you.”
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This visual, however artificial, reminds us why we invest in the first place. Disruptive tech companies allow people like you and me to invest in our future dreams. And I think being a partner in the big, transformative goals of these companies is worth the wild ride. And so is the flip side.
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But to avoid being overwhelmed by these iconic names—to get away from sales pitches, FUD, and FOMO—it takes
. And outside of the natural alignment of strong opinions, the only way to build trust is to understand the thesis. That’s what I do. If faith is a muscle, I’m your Cody Rigsby.
So today, as we step into the new year, we’re revisiting and deconstructing SoFi Technologies’ investment thesis. After all, few companies have a more ambitious roadmap and a more forward-looking CEO than SoFi.
If effective, SoFi SaaS provides a powerful combination of margin revenue and bank staying power. Sound impressive?
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Today it trades at just over $12 billion in market cap and is down about 50% from all-time highs, I think.
I want to show you why SoFi is one of my most important beliefs for the next 3-5 years.
I researched SoFi’s founding mythology from the Stanford Graduate School of Business to its infamous founder’s exit. On arrival of CEO Anthony Noto in Chamat Hyper SPAC merger. I also described SoFi’s three business segments: Lending, Technology (Galileo) and Financial Services. If you’re not familiar with the SoFi business model, start there.
Lending is SoFi’s largest, most mature and most profitable segment, and includes student loan refinancing, personal and home loans. Although SoFi certainly started as a student loan finance company, this segment only accounts for 22 percent of SoFi’s revenue, with home and personal loans making up the majority.
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This income diversity is critical, and recent events provide compelling context. Since the onset of COVID-19, the federal government has frozen student loan payments — reducing demand for refinancing.
Galileo is SoFi’s technology platform that provides fintech IaaS to many of the world’s emerging banks, including Robinhood (HOOD), MoneyLion, Dave, Chime, Varo, Revolut, Monzo, Klar and Transferwise. SoFi acquired Galileo in April 2020 for $1.2 billion.
Galileo API is considered the standard for card issuance and digital banking, providing advanced payment card programs and digital back-end banking services.
SoFi’s new financial services division has a rapidly growing number of products on a unified dashboard. These are all high frequency, top of the funnel products used to get members and get their money right.
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On November 10, 2021, Sophie announced stellar Q3 2021 financial results, including Beats and Rise. Revenue rose 28.4 percent to $278.3 million due to strong comparables in the third quarter of 2020, including a positive surprise of nearly $30 million. Adjusted EBITDA was $10 million, a profit of $12 million in the middle of guidance and SoF’s fifth consecutive quarter of positive adjusted EBITDA. Management expects growth to accelerate in the fourth quarter and raised both full-year net sales and adjusted EBITDA guidance.
During the quarter, SoFi added 377,000 members for a total of 2.9 million and 89 million Galileo accounts, an 80% increase over the previous year. Despite headwinds from student loan refinancing, SoFi’s lending group, based on personal and home loans, had another record quarter.
SoFi’s net income for the quarter was -$30 million, a clear improvement from -$177.6 million and -$165.3 million in the first and second quarters of 2021, respectively. This was due to a record $93.9 million in donations.
As you can see, lending to the fast-growing and currently unprofitable financial services sector and to some extent Galileo is footing the bill.
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SoFi guided for full-year revenue of $1.002 billion to $1.012 billion, mid-term growth of 62% and revenue CAGR of 43%, including 53% in 2022. This leadership has made SoFi the fastest growing blue-chip fintech company. I saw know
From a 30,000-foot view, SoFi is a fast-growing, diversified fintech company that funds growth with debt proceeds in its early technology and financial services segments. You may have heard this conglomerate affectionately referred to as a “one stop shop” or a “super app”.
The original SuperApp designation came from BlackBerry founder Mike Lazaridis in 2010. He explained it as follows:
A closed ecosystem with many apps that people use every day because they provide such a seamless, integrated, contextual and efficient experience.
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If we look east of China, mega giants Tencent and Alibaba have built empires on top of their own super apps WeChat and Alipay.
On the WeChat app, users can engage in social media and make mobile payments, but also every imaginable confidential transaction, such as buying a ride, charity, and chips. Since people never need to exit the app, they never do.
A combination of technological and regulatory conditions has led to the rise of Chinese super apps. Although we have more valuable companies in the US, we don’t have anything as comprehensive as WeChat or Alipay.
Furthermore, SoFi aims to build Well, a version of that. SoFi is actually trying to create a super app, but in a less monopolistic, free market flavor.
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In its final form, SoFi hopes to become an aggregator of every consumer financial product in life to help its members achieve financial independence. Something is clear between the bank and WeChat –
. If they succeed, SoFi will combine the 15 different financial apps on my phone into one high-walled shopping garden.
But since it’s not the only company pursuing this opportunity, SoFi will have to compete to make it happen. Over the past year, some of the most famous names in finance have set out to create the same concept using different terminology.
In fact, Robinhood, Coinbase ( COIN ), Block ( SQ ), PayPal ( PYPL ), and AFRM ( AFRM ) are competing for super app status:
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So many things can happen with super apps. We will obviously be a player in that. We will obviously be the market leader here.
Our mission is to be a one-stop shop for our retail customers for basic financial account and institutional crypto asset investment needs.
Honestly, I think a company that builds a real, honest financial super app will become the first trillion dollar consumer financial company in the free world.
Long Term Value (LTV)/Customer Acquisition Cost (CAC) is a fundamental measure of the economics of a consumer financial services unit. In other words, how much revenue a customer earns divided by the cost of acquiring that customer. Every financial product (and company) has its own CAC and LTV.
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For example, SoFi can get a new member for SoFi Money (a checking/savings account) with a CAC of $40, and the money user earns a revenue (LTV) of about $250 over five years.
But what if that SoFi Money member buys another product (aka “cross-buying”), like a personal loan? While SoFi’s personal loan CAC is traditionally higher than $825, SoFi does not pay CAC for items 2-10; You only need to get a customer once. So when a SoFi Money member takes out a personal loan, that $825 CAC is realized as pure profit.
And while SoFi has more than doubled its membership over the past year, it has managed to increase the critical product cross-buy metric (PPM) every quarter. In fact, Q3 was SoFi’s highest cross-buy at 1.45ppm and products grew 2.8x over the past twelve months.
By using cross-buy to distribute CAC across products, SoFi increases profitability without charging members high fees. With the super app economy, it’s no coincidence that both the company and its members win.
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But the SoFi model has a key nuance. Because CACs vary by product, cross-buy economies are stronger if member acquisition begins in the financial services segment (~$40 CAC, 86% profit margin) than in the lending segment (~$825 CAC, 45% profit margin).
SoFi, through its Financial Services division, is building a suite of products that combine high frequency utilization and low CAC at a higher level, which will shift members toward lending to higher LVC/higher CAC products.
And the directional control strategy works beautifully between purchases. In the third quarter of 2021, SoFi Invest, Money and Credit Card First members achieved record new member growth of 79% and cross-purchases of 73%. This type of performance allows SoFi to achieve margins
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