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SoFi Stock: 3 Reasons to Buy the Dip

Fintech company SoFi has been in a free fall since it went public last year. Here are three reasons to buy its shares now.

Shares of SoFi Technologies  (SOFI) - Get Free Report recently hit all-time lows. Since going public through a SPAC deal in June 2021 that valued its shares at $22.65, SoFi has fallen more than 60%.

Despite bearish sentiment toward the company, SoFi has been investing and building its capacity to become a major player in the emerging financial technology (fintech) market. We think it has good growth prospects for the foreseeable future.

Focusing on the fundamentals of the business and taking into account its current price levels, here are three reasons to buy SoFi shares on the downside.

Figure 1: SoFi Stock: 3 Reasons to Buy the Dip

Figure 1: SoFi Stock: 3 Reasons to Buy the Dip

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1. SoFi Could Become the AWS of Fintech

SoFi's main goal is to become a "one-stop-shop financial services platform." To that end, the fintech company has been making aggressive investments and strategic acquisitions to build a BaaS (banking-as-a-service) business.

SoFi made its latest acquisition in late February when it acquired Technisys, a cloud-based company focused on core banking services. The acquisition cost about $1.1 billion. SoFi expects the purchase to reduce its operating costs by $75 million to $85 million between 2023 and 2025, as well as to help the company offer more personalized services to its customers.

According to CEO Anthony Noto, SoFi is operating in the fintech space in a similar way to how AWS (Amazon Web Services) operates in other niche markets.

In this way, SoFi is differentiating itself from its competitors by using its subsidiary Galileo and now Technisys to focus on a BaaS growth path that will connect web and mobile apps through cloud technology.

To get a sense of what this could mean for SoFi's future profits, according to Lightyear Capital, embedded finance is expected to grow nearly 1,000% by 2025, from $22.5 billion in 2022 to nearly $230 billion by 2025.

2. SoFi Now Has a Bank Charter

The company recently received regulatory approval to officially become a bank. The market has been anticipating this development, and it's predicted to be a major catalyst for SoFi's future.

The bank charter is crucial for SoFi's business model transition from serving only as a lender to offering a diversified range of financial services.

According to the company's expectations, being a bank will play a large role in the company's profits. In 2020, about 83% of SoFi's revenues came from its lending business. For the next five years, thanks to the diversification of its financial services, SoFi expects to triple its lending revenues.

Figure 2: SoFi's diversified revenue streams.

Figure 2: SoFi's diversified revenue streams.

As a national bank, SoFi will have a range of new growth opportunities. But it's not yet clear how much this has already been reflected in its share price. Wall Street experts currently believe SoFi will see a 40% or more increase in revenue growth through 2023. However, some analysts forecast net earnings will remain at zero for a while.

3. SOFI Is the Cheapest It's Ever Been

Finally, there's valuation to consider.

SoFi is in the fintech industry, which is considered to be the banking model of the future. So naturally, SoFi is priced at different multiples than traditional banks. Its stock is valued primarily on the technology the company provides and its outlook for future growth, rather than on its current revenue and profit generated.

Since its SPAC deal on June 1, 2021, SoFi's stock has depreciated more than 60%. SPAC momentum hype, high popularity among retail investors in major online forums, as well as an inflationary macro backdrop that has punished tech and growth stocks with stretched valuation multiples have dictated SoFi's performance since it first went public.

Investors are worried about the company's large investments and acquisitions. They wonder whether SoFi is putting its resources to work in the right way, given that the company's investments have been in the billions of dollars.

However, for the long term, SoFi's business model is very interesting. The company seems willing to bet big on transitioning its business to become one of the big names in the emerging fintech market. Based on the potential of SoFi’s fundamentals, it might make for an interesting play right down while its shares are down.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)