Financial Institutions

Financial Institutions Accelerate Adoption of Financial Technology

Financial institutions have been accelerating their adoption of financial technology (fintech). Driving that shift has been higher Internet bandwidth and more powerful smartphones.

I expect this fintech trend to continue, which should benefit companies such as SoFi Technologies Inc (NASDAQ:SOFI). The digital financial services provider offers solutions related to loans, saving, spending, investing, and protecting financial assets.

SoFi Technologies Inc is ideally situated for the future of digital banking, but SoFi stock’s performance has been inconsistent since it went public in June.

After debuting at $24.95 following a special purpose acquisition company merger, SoFi stock traded around $14.00 in August, prior to rallying back above $23.00 in early November. But it failed to hold, and recently entered a death cross pattern.

Down 30% over the past month, I view SoFi stock as an opportunity on further price weakness.

Chart courtesy of StockCharts.com

SoFi Technologies Inc’s Revenues Expected to Surpass $1 Billion

In the past two reported years, SoFi Technologies Inc achieved double-digit revenue growth following a contraction in 2018.

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Fiscal Year Revenue (Millions) Growth
2017 $506.7 N/A
2018 $269.4 -46.8%
2019 $442.7 64.3%
2020 $565.5 27.8%

(Source: “SoFi Technologies, Inc. (SOFI),” Yahoo! Finance, last accessed December 3, 2021.)

SoFi Technologies’ 12-month trailing revenues have jumped to $870.8 million. The consensus estimate pegs the company’s revenues at $1.0 billion for full-year 2021, followed by 45.3% growth to $1.5 billion in 2022. (Source: Ibid.)

As the company’s revenues ramp higher, SoFi Technologies Inc’s management will focus on moving toward profitability and positive earnings before interest, taxes, depreciation, and amortization (EBITDA).

Analysts estimate that SoFi Technologies Inc’s adjusted loss will come in at $1.35 per diluted share for 2021 and narrow to a loss of $0.31 per diluted share in 2022. (SourceYahoo! Finance, op. cit.)

The company’s free cash flow (FCF) worsened to negative $503.9 million in 2020, but its trailing 12-month FCF has improved to negative $154.1 million.

SoFi Technologies Inc’s balance sheet shows extremely strong working capital and debt of $3.0 billion, which isn’t that unreasonable, given the company’s market valuation of $13.9 billion and cash of $533.5 million.

Analyst Take

With bullish tailwinds forming in the fintech segment, SoFi Technologies Inc has been building a significant presence in digital banking.

Moreover, institutional ownership of SoFi stock has been rising. About 28.7% of the outstanding shares are held by 355 institutions. (SourceYahoo! Finance, op. cit.)

SoFi Technologies Inc isn’t cheap relative to its revenues, but the company’s robust financial growth helps justify its valuation.

 

Originally Posted by Profit Confidential