At long last, on June 1, 2021, fintech stock SoFi Technologies (SOFI) made its debut on the Nasdaq as an independent company following its SPAC merger with blank check company Social Capital Hedosophia.
Contrasting SoFi to "incumbent legacy banks" such as JPMorgan Chase or Bank of America, Rosenblatt analyst Sean Horgan argues that SoFi possesses "a powerful cost advantage over incumbents which will lead to dramatic disintermediation over the next 5-10 years, leaving substantial primary bank accounts, revenues, and market value up for grabs." Although over time, Horgan expects SoFi to "mature" and its growth to slow, "for now," argues the analyst, "SOFI is well-positioned to capture a significant amount of the" market from its older bank rivals.
Here's how Horgan expects things to play out.
According to Horgan, traditional banks can spend as much as $1,000 just acquiring a single new customer. If that sounds high, consider how often you receive junk mail from local banks offering you a $100, $200, or even $300 "bonus" for opening a new account — then add in the marketing costs of preparing those offers, the cost of every stamp they put on every such piece of junk mail before you finally accept the offer, the cost of paying the rent on a bank branch while they wait for you to come in and sign up, and on, and on.
In contrast to this approach, Horgan says "challenger banks" like SoFi spend as little as $20 to $50 to acquire a new customer. Rather than market themselves through junk mail, Horgan says banks like SoFi do "de minimus" marketing, finding their customers instead through "viral marketing," ads on apps, and word of mouth recommendations from existing customers. And of course, with significantly less physical infrastructure, their overhead costs are less.
And this marketing-lite approach is working. Rosenblatt research reveals, says Horgan, that while only 5% of customers currently consider "challenger" banks their "primary bank," 40% of people surveyed are at least "likely" to pick a virtual bank like SoFi as their primary eventually, and 20% of those surveyed intend to make the switch "in the next 12-months."
So banks like SoFi have momentum. Indeed, Horgan projects that by 2025, fully 15% of banking customers will consider such virtual banks their primary bank.
Assuming he's right, and assuming SoFi performs no worse than average for "challenger banks" as a whole, that implies some pretty stellar growth for SoFi — customer numbers at least tripling over the next four years. So although traditional banks sell for perhaps 3.9x sales (Chase) or 4.2x sales (Bank of America) today, in this analyst's view, SoFi's rapid growth prospects justify a higher valuation for this stock: 9x revenue.
To this end, Horgan rates SOFI shares a Buy along with a $30 price target. If correct, the analyst’s objective could deliver one-year returns of 30%. (To watch Horgan's track record, click here)
Overall, in its short time on the public market, SOFI has attracted notice from two Wall Street analysts – and both agree that this is a stock to buy, making the Moderate Buy consensus rating unanimous. The shares are trading for $23, and their $27.5 average price target suggests an upside of ~20% in the next 12 months. (See SOFI stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.