Sofi Technologies (SOFI) is "well positioned to capture a significant amount of value" in the growing competition between legacy banks and digital upstarts, according to a Rosenblatt Securities analyst, who initiated coverage on shares of the consumer-focused financial-services platform with a buy rating and $30 price target.
Shares of the San Francisco company were up 3.3% Wednesday to $21.49.
"The incumbent legacy banks face a challenging road ahead as a new wave of digitally native and mobile-first banks rush into the market," analyst Sean Horgan said in a research note.
Challenger banks like SoFi command a powerful cost advantage over incumbents, the analyst said, "which will lead to dramatic disintermediation over the next 5-10 years, leaving substantial primary bank accounts, revenues, and market value up for grabs."
"As they mature, competition and consolidation are likely to follow," Horgan said. "But for now, challenger banks face a 'jump ball' opportunity to seize market share from the old guard ... and SOFI is well-positioned to capture a significant amount of the value hanging in the balance."
The analyst said that he continues "to have a very positive outlook on the challenger banks as they continue on their path of disrupting the incumbents."
"The shift is already underway, as young people ask their parents to 'Venmo them' some money," said Horgan, referring to the mobile payment service owned by PayPal (PYPL) . "This is a much more powerful customer acquisition tool as compared to checking your bank balance or receiving promotional credit card offers in the mail. This is critical to the success we expect for challenger banks."
The analyst said there has been a rapid rise "in the adoption of digital wallets/challenger banks as evidenced by the exponential rise in users on Venmo."
"Users are being pulled into these applications either by their own volition as the product suites balloon into high-touch activities (i.e., stock and cryptocurrency investing)," Horgan said, "or they are forced to revisit the app to pay their friend back for last weekend's drinks or this month's rent."
The viral spread of digital wallets driven by P2P networks, he added "has resulted in active user growth well in excess of the incumbent banks."
Sofi began its first day as a public company earlier this month.
The company started trading after Social Finance and Social Capital Hedosophia Holdings, a special purpose acquisition company founded by the venture-capital investor Chamath Palihapitiya, completed its plan to take SoFi public.
Sofi will reportedly pay $400 million over 20 years for naming rights for the $5 billion SoFi (SoFi) Stadium, which serves as the home stadium for both the Los Angeles Rams and Los Angeles Chargers.