SoFi Stock Analysis | 3x or Bankruptcy Danger.

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up hey everyone we kevin here we've got

to talk about a sofa what is the story

about sofi getting this a bank charter

approval

what's going on with mergers why is the

stock up yesterday and again another 18

today at least at the time of this

recording this is a stock that over the

last couple days has gone from 12 to now

16

and the question is is this potentially

just the beginning i mean after all if

you look at the chart here we've really

only just today crossed above our low

support level here very rarely do we

fall below this level here and it tends

to be a buying opportunity buying

opportunity here now we're above that

level that's just a little bit of ta

let's talk fundamentals though because

that's what this video is about

fundamentals how high can this go let's

talk about it keep in mind this video is

brought to you by the programs on

building your wealth if you join the

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get all of my buy trade alerts so that

way if you want to know what kind of

option trades i placed on sofi you can

learn about those i'll link down below

now full transparency for this video i

do have exposure to about a million

dollars of sofi stock but i'm going to

say things that are both bullish and

bearish and i don't want you to

misconstrue at all that i'm not invested

in this stock i am invested in this

stock so we'll make that very clear okay

so what is sofi and what do they do well

simply put their they started out as a

lending company student loans and

they've kind of expanded from there they

expanded from student loans to personal

loans to home loans to credit card loans

and to even commercial loans like small

business loans and so they make a lot of

interest income in fact about 50 of

their revenue comes from interest over

73 percent of their net revenue which is

their version of gross profit comes from

interest so they make a lot of money

from interest and this is one of the

things that has a lot of folks excited

about the idea that hey wait a minute if

we're potentially going into a an

interest rate rising environment maybe

we need exposure to banks well guess who

just became a bank so far and guess who

potentially could benefit from higher

spreads in interest rates so far now

there's always the question that

but wait a minute if you're a lender one

of the ways that you make money is

through the origination and through the

sale of loans usually don't make money

from servicing sofa does service loans

but they usually lose money on this uh

and so fi also has a technology platform

this is where they

sort of encompass their stock brokerage

as well where you can buy crypto you

could buy stocks things like that they

also have referral fee based systems

where just as an example if you want to

sign up with life insurance try this go

to metkevin.com

life

and then compare that landing page that

you go to to the landing page that sofi

has when you try to sign up with life

insurance it's the same it's because we

that is me separately from sofi have a

partnership with ladder life we get a

little squeeze page you go to it you

sign up it's the same life insurance i

have i get a thank you bonus for you

doing that sofi does as well so we're

actually using a very similar way to

make money in that sense but these are

all smaller portions of their revenue

their referrals their technology

platforms this is less than about 20 of

their revenue right but more importantly

going back to the the loan origination a

lot of folks are excited about the fact

that wait a minute if sofi is a bank and

most of their money comes from interest

what if they can cut out the middle

person that is using another bank to

fund these accounts to come up with the

money to borrow the money if they can

cut out a bank and they can now lower

their cost of capital by being a bank

then they're going to increase their

margin and potentially make more money

this is big news and that's exactly what

this is big news but i do want to also

just give a quick shout out before we go

into more of this banking news uh to the

fact that they acquired galileo

financial this is a company that

actually provides virtual credit cards

physical credit cards and payment

processing apis to

different platforms and sofi owns this

sofite does a lot

yesterday we probably spent together

about

i would say maybe somewhere around 25

man hours or human hours reviewing sulfi

and and coming up with the the

fundamental analysis that we're

reviewing here but in doing so it was

really mind-blowing was just how deep

sofi really is invested in the uh the

fintech space see one of the things

that's wild is that within this 20

revenue section they have so many

different ways of trying to attract

people to their business and that is a

critical and we'll talk more about

numbers regarding that in just a moment

but that's critical they want every way

for you to potentially come to sofi to

be an option that's open and so they

have a robo advising business but not

only do they have a robo advising

business where they are a licensed and

registered investment advisor for that

that's sofi wealth llc all under the

sofa umbrella but they also have a

financial planning service it's sofi

capital advisors llc another registered

investment advisor all under the sofa

umbrella and here you can literally set

up a free financial planning consult

consultation call with a professional at

sofi

now that that is mind-blowing to me

because i'm like part of me is actually

a little bit concerned because i'm like

how how are y'all trying to make money

here i don't get it how could you give

away free financial planning like this

but then it makes sense

so far spends a lot of money on

acquiring customers and so their cost of

acquiring a customer is somewhere around

eight hundred dollars well the expected

lifetime value of a customer at sofa is

about sixteen hundred dollars so in

other words they're putting eight

hundred dollars on the table now with

the goal of doubling that over the time

that you are a lifetime customer at so

far okay makes sense put 800 in get 1600

back hopefully you could do that within

five to 10 years and you got a pretty

nice rate of return especially if you

can decrease that cost capital or cost

of customer acquisition from 800 to 400

well now things start getting fun now

you get to like forex right and so

if you can attract somebody through

let's say the financial planning

business and then get them into a home

loan or into a personal loan or into a

credit card consolidation loan or into

their stock brokerage and then

eventually into the loans well gosh now

you've got a customer for life as long

as you don't well piss them off

uh and so

not only do they have this

investment advisor business which is

incredible but then i realized

that they also have

five uh at least five

free

etfs now these are just uh baskets kind

of like what you could set up on like m1

finance or whatever but they are actual

exchange traded funds which bestow

certain tax benefits talk to your cpa

about that

and using these and potentially trading

in these i i don't believe that these

are actively managed it's not like these

are kathy wood style etfs remember over

uh at uh kathy wood uh at her ets like

arc you're usually paying somewhere

around eight uh 80 basis points

in fees to invest in an etf so that

would mean if you have a hundred dollars

invested you're paying about 80 cents

per year as a fee for that etf and it

makes sense because etfs cost a lot of

money to establish i mean you could be

spending or an etf company uh probably

has a break-even cost on an etf of

managing somewhere around 50 million

dollars with uh with an 80 basis point

fee

and so the fact that so far is providing

five different ones with no fee at all

is kind of interesting now i don't know

much about the contents of them and

whether they're actively managed or not

i highly doubt they are actively managed

but i imagine they make some sort of

modifications to them over time

depending on on whatever they feel uh

anyway those are things that you could

explore if you wanted to download the

sofi app i'm not sponsored by sofi i do

again want to be very transparent i'm an

investor and so far uh i'm not a

personal user of sofi uh which i

probably should be and i am

not sponsored by so fun i have been in

the past though uh but not right now

okay now let's talk a little bit about

the banking aspect of sofi and some

background information because there's

some misinformation

related to this in terms of how much

capital a sofa is going to have to spend

to get all this set up and going and and

is this potentially going to constrain

this growth over at so far so let's

clear this up now golden pacific bank

was acquired by sofi uh on march 12th

2021 for 2.55 cents per share which

worked out to about 22.3 million dollars

so in other words so far spent 22.3

million dollars to buy

a bank which

is actually not that much money to get a

company

essentially that has a banking license

now it still took

10 months though for a regulator to say

we're okay with this merger and that's

how sofi is actually getting their

banking license see they're not going

from scratch trying to get a banking

license they're acquiring a bank merging

with this and then applying through

essentially a streamlined process of of

getting a banking license this is very

very common banking charters are

probably the most difficult thing that

you could try to get done in america but

there are some benefits of this for

example if you are a licensed lender you

usually have to be licensed in all 50

states and that that's a regulatory

burden now if this is a substantial

burden for uh there's no consistency

usually between states it's a massive

burden for companies to manage uh now

when you're a bank you're managed by uh

fdic the fed and the sec so you're

really going from 50 state governments

and the sec once you're past 15 states

down to

three regulatory bodies so it's still

kind of insane that you have three

regulatory bodies but it's a lot better

uh and so

so if i bought this bank and they are

merging with golden pacific bank that's

how they're getting the charter they're

going to be renamed sofi

bank the operating agreement does say

that the resulting banks shall not

engage in any crypto asset activities or

services currently performed by sofi but

it's important to separate these as sort

of uh the the umbrella that uh that you

should kind of picture for this so it

gets a little confusing but

i think it's made very simple by this if

we just say here's sofi

uh ink then if this is sort of the the

holding company then sofa has many

different aspects underneath it right

remember we've got those two different

uh registered investment advisors the

two different versions of that you've

got like the robo advisor and then

you've got uh the financial planning

section

and then you've got like the technology

platform over here which could be like

sofi crypto i'm not exactly sure if they

call it sofa crypto but whatever

wherever they offer the crypto and stock

services whatever this is which they use

apex to perform these services which is

just an intermediary that actually

fulfills the trades for you it's worth

noting that companies uh well robin hood

used to use apex back in 2016.

uh weeble and m1 finance and many many

many other companies use apex payment

for order flow all the kind of classic

stuff you would expect is over here uh

so so if it does use payment for order

flow

and then you have sulfite bank so sofi

banks over here and so when you see no

uh crypto is allowed that's that's over

here at the bank portion uh it's okay

for crypto to continue here at least

that's my understanding uh and and

reading of uh documentation about what's

going on here so uh then we've got uh

this so so now you've got a little bit

of background on how this works and why

the streamlining

helps

and now

numbers wise it's useful to consider

what barron says

baron says that we can expect

200 to 300 million dollars in additional

annual adjusted ebitda because of

lowering

costs of capital

that's huge and i'll show you where

those numbers you know sometimes just

saying these numbers doesn't make much

sense i'll show you in a spreadsheet

where this becomes a lot more relevant

but that's huge so this banking charter

is a huge competitive advantage and it's

something that sofa is extremely happy

about and investors should be very happy

about as well investors should be

cheering

this and we'll talk values as well now

as far as

the company itself and user growth

it's worth mentioning that in september

of 2019 the company had about 750 000

users

a year later by september 30th of 2020

they had 1.5 million users

and as of 2021

september 30th we're at 2.937 million so

you've almost got a double a double and

a double which is pretty incredible now

they also cross sell

about 70 of their products which is huge

again remember it lowers that cost of

acquisition for customers and they're

really trying to bump this by making

sure that they can offer pretty much

every single service that somebody would

need in the financial

space whether again that's stocks or

crypto or financial planning or home

loans or refinances or credit cards or

whatever they're trying to touch

everything now that their bank is well

when interest rates go up i expect that

sofa is probably going to get a little

bit competitive with a high yield

savings as well

but speaking about competition it's

important to remember that there is a

lot of competition uh consider this

you've got jp morgan reporting

a significant drop last quarter in this

quarter in credit card income

uh which isn't good and jp morgan is

ramping up their marketing for credit

cards so you're going to have

competition in that credit card space

which if somebody goes to jpm instead of

sofi that's potentially a client that is

now getting their home loan through jpm

instead of sofi or their student loan

refinance right

we also don't expect according to jp

morgan that deposits are going to grow

substantially in 2022 but that right now

we are seeing higher balances in folks

accounts than usual which is good so far

has recognized this as well and the goal

is for more people to have more money at

so far that's the ultimate goal

however jp morgan does caution us that

we're actually likely to see a decline

in margins for mortgages going into 2022

and that's probably because the mortgage

industry is extremely competitive this

is one of the reasons you've seen the

united wholesale mortgage and rocket

mortgage not do that well in terms of

their stock price these are extremely

competitive lenders and they make it

very very hard for companies to gather

what are known as spreads

and this is where if let's say you're

borrowing the money at uh 2.5 but you're

lending it out at 3.5 on a 30-year

mortgage and then generally you're

securitizing these and selling these

loans off anyway but that spread gets

squeezed when you have clients who are

able to shop the best kind of client for

a company is a client that comes in

through like a student loan and then

they do their stocks at so far or

whatever and then they're like oh yeah i

need a mortgage too and they don't even

shop they just

can't have a mortgage right this is one

of the benefits of always shopping when

you're when you're looking for a

mortgage uh or even using potentially a

loan broker who can do that shopping for

you

now

worth also noting from some of the other

banks here that uh morgan stanley uh and

uh

city as well as wells fargo have all

mentioned that uh trading revenues have

declined in the last quarters and that

is still a portion of sofi's revenues

it's about 18 so we're going to see some

headwinds in trading and that's

literally what so far said in their last

earnings call that they expect headwinds

in the trading segment and this is

reiterated by what's going on at the

other banks which is so weird to say

that now but you can now say the other

banks because so far is now a bank

uh we

do have an increased what's being called

by morgan stanley uh in terms of a war

on talent or war 4 talent

this basically means companies are

having to pay substantially more for

talent so

if sofi wants more financial planners

they're potentially going to have to pay

more for those experts and that's likely

going to increase their cost of doing

business which isn't the most ideal but

is ultimately something that is part of

the environment that we're in right now

uh we are seeing at wells fargo default

rates at uh and this was reiterated by

many different banks but wells fargo i

think said it best they said that

payment rates are extremely high and

default rates are extremely low right

now on credit cards they say that

regarding savings consumers have 30 to

35 percent more on deposit than they did

pre-covered

however they too are launching new

credit cards including a two percent

cash back on everything card with no

limits uh and no need to call to sign up

for a category that's a slam on chase

right there bank of america also sees

small business lending running

consistently above pre-pandemic levels

and every loan category is expanding

except for home equity now that is

actually bullish for bank of a or for

sofi uh and really just the lending

industry in general bank of america is

saying wow we're seeing small business

lending pick up lending pickup in

consumer loans and credit cards and

student loans then that's bullish for

sofi right

and again so we're seeing headwinds and

trading and probably margins getting

squeezed

at the mortgage segment but in the other

lending sectors it and wages going up

right but in the other lending sectors

we're seeing positive news and a

positive growth

now you do have competition as well

from a company like upstart upstart

offers loans on their website and they

basically are a cloud-based artificial

intelligence lending platform and

they're kind of like an ai broker is the

best way i try to describe

upstart now i'm not an investor in

upstart but basically they have software

that make it very easy for bank partners

to get loans done through

uh through upstart that is a form of

competition uh from

for sofi so you gotta watch upstart as

well as a competitor and it's going to

be one of the comps that we use for

trying to value sofa as well

uh they also get platform and referral

fees that are either a fixed amount or a

percentage based on the volume of these

loans originated this makes sense it's

kind of like a commission for doing

loans again that makes them a competitor

to sofi now uh it's presumed that a lot

of their loans are sold pretty much once

they are

originated

so if we do see more competition here or

declining fees that is going to be a

risk for a company like sofi and upstart

because originations and selling loans

is a way to make money and again

so if it makes a ton of money from

lending the vast majority of their

lending over 70 percent of uh their

their net revenue comes from lending

okay so now let's talk about uh the the

actual cost of goods sold here which is

the cost of their services the biggest

problem that i think so far has and this

is

something that i think is critical for

paying attention to is decreasing the

cost of acquiring customers if for some

reason it becomes substantially more

expensive to acquire customers like

let's say sofi has to brand a stadium

to start acquiring customers

to me that seems a little excessive and

expensive and that's literally what sofi

did the stable center is now the sofa

stadium which is mind-blowing that a

company with about a 12 or 13 billion

dollar market cap spent over 400 million

dollars on a stadium now in fairness

when they made the deal the company was

worth a little bit more the stock has

come down a little bit from some of its

euphoric highs

but uh it still seems a little wild so i

do have concerns over the amount of

advertising spend so far also does a lot

of a partnering with digital influencers

which personally

this might be a little biased to say but

i think it's actually a really good idea

i think partnering with digital

influencers is the best kind of

advertising like

and i always want to be transparent with

you when i'm sponsored i'm not sponsored

by so far in this video again i do

understand though but for example what

would you what do we care about more uh

you know a tv commercial oh sign up you

know and make sure to call now call sofi

now 1-800-355-3500

right like that or somebody giving you

a deep dive about a product and then

being transparent about being sponsored

by uh by the company right again this

video is not sponsored by so far but uh

i haven't sponsored by them in the past

so

i think they're a great company

now uh okay so that is a segment to

watch when it comes to sofi is their

marketing spend because their margins

right now suck and that's because

they're well the reality is they are an

unprofitable business right now okay so

let's take a look at one of the

templates that i like to use for stock

analysis uh i've got a few of these one

for unprofitable companies one for

profitable companies and uh it probably

took me somewhere around myself around

30 hours to put this together it's not

perfected yet but i'm still working on

it and i think the more companies i

analyze with this the better it'll get

but now this here is a spreadsheet that

i put together on sofi and if we hop on

over to the a conclusion of the

spreadsheet we're going to get a few

different ways of valuing this company

again it's not profitable right now we

do expect to be profitable in the future

by 2025 and if we use about a

66.9 times multiple in 2025 i do believe

that a fair value for

sofi would be about

32.56 which

at the time i put the spreadsheet

together that was so if i was trading

for about 1371. i can jump over here and

we can modify this just so we can get

the compounded rate of return let's do

that here so let's go in here and edit

this sheet here

and let's take sofi's price which right

now is yesterday's price let's just

delete that and manually throw in

16.36 here for the price

and so if

sofi does end up running to about 32.56

cents by 2025 then that's an 18.7

compounded annual rate of return it's a

double 18.78

that's not bad i do have a second metric

that i like to use and it's price per

sale or price to sales ratio it's

basically market cap uh

and uh and then revenue weighted

and uh in this case it's the result that

i got was a little less bullish i got to

about 27.63

and i always like to look at both of

these numbers and make sure that i'm

comfortable with both of these rates of

return because first of all i like to be

conservative with my analysis

but second of all uh it's it's always

important to know that you could have

price to earnings compression or you

could have price to sales compression or

you could have compression in both and

so i always like using different metrics

especially for unprofitable companies

it's a little bit more difficult

these are the comps that i used so uh

obviously sofi is is one of its own

comps so for in terms of price to sales

you would use so far as one of its own

comps square paypal nerd wallet upstart

that's where i got to about an eight in

terms of average price to sale or median

price to sale here rather

i didn't use average because

the nerd wallet has nerd wallet and

square are a little skewed in price to

sale right now

and they would weight this price to

sales down substantially so i'm using a

median to get a little bit more of a

true middle here i and then i also

compress this by about 10

so i'm only using 7.2 as the price to

sales in the future for 2025.

and then the uh current average price to

earnings ratios that we have uh between

square paypal nerd wallet upstart is

about 94. and because nerdwallet it has

an infinite pe i actually used 100

just to to make sure this this wasn't

too ridiculous of a weight and then i

took 30 percent off for multiple

compression in the future bringing me to

about that 66.93 so that gives you a

little bit of an idea in terms of how

that worked

but this is worth looking at over here

this is where we're going to change a

little bit of information so this right

here in yellow

the top line here in yellow is

information from the average wall street

estimates right now

and i'm going to modify this a little

bit because i believe that we're going

to have a little bit of a higher margin

than what wall street is currently

expecting

and so

what the reason i say that is because i

don't believe that wall street has

priced in yet the margin improvement

that having a banking license is going

to give so far so i'm going to go over

here and i'm going to take about 10

off of the operating expenses that

should give me about 300 million dollars

of more bottom line money so if we had

taxable income here of 515 million if i

drop this to 25

in 2025 once i have their bank up and

running and everything that gives me

about 300 million more here brings me to

about 859 million in taxable

income and it now because the

spreadsheet updates as i make it

we jump over here we can actually see

that so far could potentially run as

high as 54

dollars

by 2025 if these margins improve this

much now i like to be conservative so uh

even though 54 dollars is really cool uh

some people you know can can pull price

targets out of thin air and say things

especially when a stock is running or

going up people like to say oh it's it's

going to 100 it's going about it fine

that may happen but ultimately things

tend to rubber band back to fundamentals

54 is possible that's more than a 3x on

this stock again i'm going to be

conservative but i'm showing you that

the original numbers that we used here

taking off

or not including that additional

marginal improvement there the

additional numbers there easily in my

opinion bring us to 32 to 27 already

with compressed multiples and compressed

price to sales ratios so

to me that's that's very very exciting

and something that i'm relatively

bullish on so we'll see the big issue

for sofi though is going to be

maintaining growth and so far they've

been doubling every year

i don't expect that double to continue

that's 100 growth so right now i've

actually only got 47 here for 2022 42

for 23

20 about 30 for 2024 and 25 for 2025.

now that that could end up being a

realistic growth curve for sofi or they

could miss substantially maybe their

advertising falls flat and doesn't work

as well so there are real risk factors

here it is not a profitable company

today uh you you can't do a discounted

cash flow on this company right now

unless you really want it to project out

to 2030 which i don't like to project

out more than four years i already think

projecting out to 2025 is generous and i

don't think they're going to be

profitable until 2025 maybe 2024

actually i do have my 2024 being

profitable so there are a lot of things

for you to weigh here now i do want to

also mention that there was a seeking

alpha article where somebody mentioned

that sofa is going to have to contribute

750 million dollars in capital to golden

pacific bank and they kind of implied

that this was an expense that so far was

going to have to spend this money uh to

to essentially acquire the banks 750

million dollars i think they missed the

fact that so far already acquired this

bank for 22.3 million dollars

in march

uh and this 750 million dollars is

really just the capital they're parking

over there so it's kind of like moving

cash from one part of sofi to the other

so i i i'm not too worried about the

capitalization of sofi like this

individual was in in this seeking alpha

review

now regarding cash they have right now

they've got current assets of about 854

million dollars and i could see that if

you're like well they got 854 million

they got to move 750 oh my gosh like

you're not gonna have much cash left but

again this this is part of their

operations remember they make most of

their money from lending so the fact

that they're moving money over there is

again just moving money around

uh they do have current liabilities of

552 million dollars so more more current

assets than current liabilities and then

they've got some debt okay they've got

5.5 billion dollars of debt so uh

longer-term debt is something to pay

attention to here as well

part of this longer-term debt is there

their

the crazy amount of spending that they

do for advertising okay uh you know i

mentioned earlier i think the digital

influencer spend is great but if it gets

out of hand and they they have lower

rates of return on their partnerships

with digital influencers or things like

branding with with the sofi stadium then

i do think that there are substantial

risks for sofi

and if they do start pairing back their

marketing spend then they might not grow

as much as they're expected if their

marketing is less

less effective then they might have to

spend more money and grow less

than than expected so there are a lot of

assumptions when you're investing in a

fintech company and fintechs have been

getting wrecked in the stock market

lately

so a lot of risks yeah i do think that

the downside

generally for sofi is around 14 and 80

cents

and this is this is more technically

based than it is fundamentally based and

it's really solely because looking at

the chart you see this thick blue line

right here it's pretty evident that when

you're buying it under 1480 in my

opinion you're getting a relative

bargain on it uh now

no guarantees that's like i said it's a

relative bargain which does not

necessarily have to mean bargain you go

into a recession the last thing you

probably want your investments in are

companies that

are exposed to loans that could

substantially default but again when we

listen to what the other banks are

saying that doesn't seem to be as big of

an issue so

look i'm optimistic if you want to know

exactly what kind of trades i'm making

and everything that i'm doing when it

comes to investing make sure to check

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a link down below stocks and psychology

money group comes with a buy sell alerts

there is a coupon code that does expire

on my birthday which is now in what is

it uh eight days so i'm super excited

about that anyway hopefully you found

this helpful if you did consider sharing

this thank you so much for watching this

video and folks we'll see in the next

one thanks