3 Reasons Why SOFI Is a Must-Buy Fintech Heading Into 2024

Stocks to buy

Although SoFi Technologies (NASDAQ:SOFI) is having a good year in the markets, SOFI stock has traded in a narrow range between $5 and $10 over the past 18 months. It hasn’t been the volatile stock most investors would consider it to be.

However, it also hasn’t delivered for shareholders of Social Capital Hedosophia Holdings V, the special purpose acquisition company (SPAC) that SoFi merged with on May 28, 2021, to go public. Its shares are down 57% since then and 14% from the SPAC’s IPO price of $10 in October 2020.

Since going public, much has been written about the fintech’s trials and tribulations. Perhaps it should have remained a private company out of Wall Street’s bright spotlight.

That’s one argument. Another is that these challenges have made SoFi a better company, one capable of overcoming challenges such as the pause in student loan payments.

Next year could be the year SOFI stock returns to the mid-teens and 20s, where it and its predecessor traded for the better part of an entire year in 2021.

Here are three reasons why.

SoFi’s Galileo Technologies Heads South

InvestorPlace’s William White reported on Oct. 11 that the company’s Galileo Financial Technologies subsidiary received Mastercard certification to operate in Argentina, Brazil, Chile, Perú and Uruguay. Galileo first expanded into Latin America in 2020 in Mexico, adding Colombia in 2022.

Galileo, utilizing Technisys, a leading cloud-native, digital multi-product core banking platform acquired in March 2022, offers its customers an end-to-end solution for launching digital financial products.

The company’s March 2022 press release announced its expansion into Colombia stating, “The combination of Technisys’ platform with Galileo will uniquely support multiple products — including checking, savings, deposits, lending and credit cards — as well as future products, all surfaced through industry-leading APIs.”

As my colleague reported, Mizuho analyst Dan Dolev defended the company’s expansion into Latin America, arguing that there’s a palpable thirst for digital payment solutions in the region.

Although I’ve been wrong about the direction of SOFI stock, I’ve always felt the $1.2 billion spent to buy Galileo in April 2020 (before its merger to go public) was a wise purchase, especially when combined with Technisys.

Latin America will become a more critical part of SoFi’s business in the years to come — and that’s a good thing.

SoFi’s Lending Capacity Is Not Shot

In addition to Dolev backing the company’s move into Latin America, he suggested SoFi can make personal and student loans for five or six quarters without selling any of its loans to third parties. If it sells approximately 10% of its annualized originations through Q2 2023 to third parties, it can lend for as many as seven quarters without any other capital raises.

Further, for every $100 million in GAAP net income it generates, it grows its lending capacity by $750 to $800 million. The company believes it will be GAAP-positive by the end of fiscal 2023.

While Dolev is high on SOFI, analysts are all over the map. Of the 19 that cover its stock, six rate it a Buy (Dolev is one of those), while four have it as an outright Sell. The average target price is $10.40, 21% higher than where the stock is currently trading.

Financial Services Close to Profitable

If you read through its Q2 2023 results, you should look closely at its Financial Services segment.

Revenues increased 223% in the quarter to $98.1 million. That’s about 20% of its $488.8 million adjusted net revenue for the quarter. That’s more than double from its 8.5% contribution in Q2 2022. More importantly, the segment’s contribution loss was $4.3 million, 92% lower than a year earlier.

With nearly eight million financial services products sold in the second quarter, 47% higher than a year earlier, I don’t think there’s any question that this segment is contributing profits, not losses, to SoFi’s bottom line in 2024.

It’s gradually becoming what it wanted to be for some time: an all-in-one digital personal finance company.

That’s an excellent thing.

On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.