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SoFi: Bank To The Future

Tyler Okland profile picture
Tyler Okland


  • SoFi is leading the crowded race to super app nirvana. We discuss why super app superstardom is a prize worth fighting for and why SoFi is structurally stronger than peers.
  • A looming SoFi catalyst is approval of the bank charter. I highlight the impact of this charter on SoFi's business and how a financial services company can achieve margins >90%.
  • We delve deeply into Galileo, what it actually does, and how it offers SoFi investors a call option on "the AWS of fintech."
  • The student loan refi landscape is dynamic and changing. We evaluate how the recent repayment extension impacts SoFi's profitability.
Tech And Media Elites Attend Allen And Company Annual Meetings In Idaho

Drew Angerer/Getty Images News

Happy New Year!

I begin to write the present piece from the familiar sanctuary of a well-worn couch, stuffed and hungover – not from tipple but from turkey. After glancing sideways at a beleaguered portfolio this morning, it’s hard not to crave a comforting fortress

This article was written by

Tyler Okland profile picture
I am a Stanford and Vanderbilt trained surgeon. Particularly interested in disruptive technology companies, and take a long horizon in my investment decisions. Nights /mornings/weekends I am building a data analytics company for residential real estate : www.Datadoor.io Find me on Twitter @tyler_okland_md to discuss ideas/collaborate.https://theoperator.substack.com/

Analyst’s Disclosure: I/we have a beneficial long position in the shares of SOFI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (198)

Tyler Okland profile picture
Tyler Okland
Article Update 10 Jan. 2022
If you’re dying for more SoFi content, my interview from this past weekend is linked here:

Riyado Sofian profile picture
Tyler, you are an incredible storyteller, and I'm always impressed by your analyses - they're unique and memorable. Although I'm neither a bull nor a bear on SoFi, I thoroughly enjoyed this article and learned a lot from your writing.

That said, here are some rapid-fire ideas I gathered while researching SoFi:

1. With Lemonade stock souring, I think SoFi should acquire the company to boost its SoFi Protect subsegment.
2. Incredible growth in terms of members and products, but revenue growth is lagging. Would love to see better monetization from SoFi overtime.
3. I think in terms of being a Superapp, Cash App and Square has the upperhand. SoFi seems to be more consumer-focused, while Block has a large network of both merchants and consumers, which is something AliPay, WeChat, Gojek-Tokopedia, and Shopee all have in common. SoFi could definitely dominate the personal finance category, but being a Superapp seems to be a longshot.
4. Jack of all trades, master of none — focusing on trying to offer as many financial services as possible may not present operational advantages over competitors.
5. Solid CEO. Probably one of the only few areas where I'm confident about the company.
6. Another differentiation would be Galileo.

Thanks again for the wonderful article!
Tyler Okland profile picture
@Riyado Sofian Thanks as always for reading and your comments Riyado.

The lemonade idea is interesting. I agree it might be challenging to build this product from scratch.

Revenue growth in 2021 was greater than 60%, so I personally don’t have any problems with that. Plus I am forecasting high 40% revenue CAGR for the next four years. Outside of Opendoor and sub scale players I don’t follow any fintechs growing revenue as rapidly as SoFi. You might be looking at yoy quarterly growth, which is less impressive because Q3 2020 was an outlier.

I think Block is going to struggle due to its overfocus on Bitcoin, and wall street seems to agree with me. Don’t get me wrong, love the company, but can’t be a super app if you limit customers options. Block and Shopify are more seller oriented, whereas SoFi is aiming to disrupt consumer banking. I really like their positioning actually.

Agree SoFi is jack of all trades, but the superior economics allow continued investment and product refinement over the years. Just look at how Robinhood is imploding despite being the actual master of one (brokerage, commission free trading). This is why diversification matters in fintech, and why each and every member of the fintech royal family is pursuing super app status.
Tyler Okland profile picture
Bank charter approved

Lado Gurgenidze profile picture
A well-written article, thank you.
In the short amount of time Fintech has been Fintech the real investment winners for companies that have recently (<2 years) IPO’d (via SPAC) are pre IPO investors and not post IPO investors.

Although I strongly believe a vertically integrated “Fintech” offering will be the future, I personally will not invest in a company that IPO’d via a SPAC as it is apparent, at this time, who the winners are.

Very well written article. Thanks for sharing.
Tyler Okland profile picture
@6824615 Totally get it, thanks for reading and keeping an open mind. If I’m right about any of these companies I’m very, very early.
Michael Dolen profile picture
We may disagree on OPEN, but agree on SOFI.
Allen Greathouse profile picture
Impressive article from one of my favorite contributors!
Tyler Okland profile picture
@John Greathouse 🙌🙌 Looking forward to your article
Allen Greathouse profile picture
@Tyler Okland Thank you! Working with the SA editors to get it published, its quite a long process
Resolute Investing profile picture
Your article and analysis is simply brilliant.
Tyler Okland profile picture
@Resolute Investing Well you made my morning. Thank you very much.
Blue Chip Investing profile picture
@Tyler Okland well done. Best analysis put together on sofi since the stock went public. Not just on seekingalpha, but also including proprietary i bank and general Wall Street reports. One thing I think would be worth pointing out, and perhaps you know this already, but Lending Club should not be compared to Sofi. I ran a hypothetical personal loan quote today through credible and they had a 5% origination fee on a 50,000 loan. Sofi, Marcus (gs), LightStream (tfc), discover (dfs) and pended credit union all also offer no origination fee as well as much lower interest rates and better terms. Lendingclub just doesn’t stack up and when the whole point of digital banking is lower fees, ease of use and a streamlined process I don’t see how they succeed. And after running an auto loan quote they are also .75% higher than my local credit union. I don’t understand the value prop
Tyler Okland profile picture
@Blue Chip Investing Thanks so much for the comment and this datapoint. This might in part explain why Lending Club trades at such a discount to other lenders such as SoFi and Upstart.
Blue Chip Investing profile picture
@Tyler Okland this is probably outside of your coverage universe but I have two companies for you to take a look at. One is (onem) one medical and two is (Maxn) maxeon solar. One medical is a hybrid telehealth and traditional healthcare company that has bougie high quality small offices for in person visits and a second to none super healthcare app where you can book appointments with registered doctors, nurses and specialty care providers less than 24 hours in advance. You can also fill your prescriptions and communicate seamlessly with a team of healthcare professionals and your preferred doctors with a couple clicks. The service also offers worldclass 24/7 support and charges a 199 a year fee for the subscription and accepts your insurance. It is the the Sofi of healthcare but is a bit further along its growth cycle. In its last quarter revenue was up over 50% and they are on pace to post 1 billion + revenue in 2022 on a market cap of 3 billion. They are also active in the enterprise market and they are now the preferred healthcare partner for all Morgan Stanley and etrade employees (side note Morgan Stanley took them public and recently brokered their acquisition of lora health). One of the fastest growing stories in all of Wall Street in one of the ripest sectors for disruption, traditional hospital systems. Second is Maxeon solar. Maxeon solar is a spin-off of sunpower which is second largest panel making solar companies in us behind first solar. The advantage they have is they have the highest conversion ratio solar panels in the industry. Solar Conversion ratio is the percent of sunlight they convert to electricity. They also are launching a flexible solar panel called maxeon air that is a flexible and adhesive, think pull and peel solar panel that could be attached or even integrated into the roof onto any ev in the country and when combined with a battery could eliminate range and charge issues associated with ev’s. Countless other use cases exist for their panels. They are also partially owned by total energy which is the largest energy company in Europe. They have a t12 revenue run rate over 800 million and are on pace to produce 1.5 billion in 2022. Best of all it has a market cap of 580 million! The issues holding back the stock are 3 fold, one supply chain issues pressuring margins, two a legacy poly silicon contract forcing them to pay above market rates for poly till the end of this year and the delay or termination of build back better. Either way the stock is a potential 10 bagger over next 3 years and could be the best small cap opportunity available today. Cheers
Tyler Okland profile picture
@Blue Chip Investing Love the short pitches, both sound super undervalued. Both are on my watchlist now, thanks.
I also have SOFI has a long term investment provided they get the charter. I have been doing covered calls in 2 of my accounts. I've collected $2.44 per contract in one and $2.97 in the other account. That gives me a buffer and if the stock tanks I have at least some offset. Only time will tell and hoping for the best for all long investors.
DividendGangsta profile picture
If you have a long term view AND feel that they will be granted the banking charter, then at $13.78/share, most risk has been priced out of it. I plan on doubling my position and then let it ride for the future.
What was the business plan of the students in Stanford GSB when they decided to create another finance company specifically geared towards student loan refi? What was the need then that was not being met and they figured they could meet that need?

Stanford is the center of innovaton (being center of the valley) and Tyler is from there and I can't understand what is innovative about cross-selling products (aptly named as superapp.) Travelers group bought Citibank in early 2000s to cross-sell and ended up on the financial stretcher during the GFC having cross-sold itself into oblivion.

Finally sofi is making most of its money on loans. A bad place to be heading into a tightening economy.
Tyler Okland profile picture
@ding dong I wrote about the founding story and motivation in my first SoFi article. Good luck dingdong!
Gino Verza profile picture
@ding dong I agree that (assuming) consumer credit risk (and rapidly growing credit exposure) is a tough spot to be in the 2022 environment. The company's narrative is a FinTech story, but the preponderance of revenues, assets, and risk are in Lending. Good luck to all.
"I wrote about the founding story and motivation in my first SoFi article."

Got it. Alumni funding student loans for the current GSB class at Stanford. Sound like part charity, part sure thing. No one is that is paired with an actual person who is a lender will default on a loan. But this model was not scalable. They scale it to other universities but that is about it.

Now as they become a true bank they will find it much harder to scale and be profitable and keep risk in check. What I have not understood yet is how is SOFI able to drum up any student loan refinancing business at all? They work with at least 3% cost of capital disadvantage to begin with. How do they compete with big money lenders like BofA or Chase? Are traditional banks not allowed to refinance student loans? A few things I can think of:
1) They are taking on a lot more risk than traditional banks would. The risk will only show up in a bad economy.
2) Their lead generation is much better than traditional banks. But how? Why?
3) The students refinancing do not want to deal with traditional banks for whatever reason.

This has been gnawing at me for a long time. Why has Sofi been able to successfully refinance loans even though they suffer from higher cost of capital.
These articles are so misguided. There's nothing special about SoFi. Sign up for it. Actually use it. There's a bunch of competitors just like it. There's no secret sauce or patented tech. I fail to see what excites everyone so much about SoFi.
@MiamiInvest305 Absolutely correct. I refinanced student loans with SoFi and did my mortgage with them. Recently received an offer from them to refinance the mortgage so I did. It was worse than any endeavor I've had with any bank/financial institution. Their payment processing is routinely down for maintenance during normal evening hours. They are a bank with a flashy website.
DividendGangsta profile picture
@BurtReynolds Did their bank charter get approved? I must have missed that.
kyri0882 profile picture
$14,10.... And now not even superman can save us. LMAO. We have 2 more days to end this catastrophic week. Oh it can be very bad.... Even if they will announce the bank charter NOW, it wont make any difference at all. I bet on that. FED has just killed the markets. Fintech was already in coma, but now its game over. Sad. So many people will most likely lose their money again.
Gino Verza profile picture
@kyri0882 FinTech or Lending?
@kyri0882 , be more optimistic my friend. Russell 2000 was way oversold today. I think we will see all green tomorrow. Sofi has bright future if you are in for long term.
kyri0882 profile picture
@Ronaldo123 Im indeed long in SOFI. My only problem is that i have loaded the boat at $14,5 with X5 leverage. Meaning, im very close now to say goodbye to a big ammount of $. $13,15 is the limit on that. And at this point no reason to be optimistic. Rather than that, yes i believe in this company and its management. Thats why i have invested with leverage. Right? Especially at $14,5. A point at which SOFI is a bargain IMO. So now, under these macro circumstances, SOFI going back up to $15 or $16 without any obvious reason, is very unlikely. Almost perverce. Lets hope that the $13,49 that held before as a huge support zone, will hold again this storm.... Btw, a few days ago, we had another SEC filling for an insider buy. So the stuff there buys at these levels. I dont know. Oh, have you read that is very likely that the super bowl wont take place in SOFI stadium because corona numbers are going higher?!! LMAO that will do it!!
Gino Verza profile picture
Perhaps the drop in stock price can be attributed to market looking at SOFI primarily as a lending business and secondarily as FinTech (for the reasons mentioned in my previous comment). Perhaps the market is looking into SOFI's lending competence and trying to understand the sufficiency of the leadership experience in Lending. IMO.
Tyler Okland profile picture
@Gino Verza It’s rates and inflation concerns hitting everything today.
Sofi has been oversold. It is down again today together with the Nasdaq selloff. I'm thinking of adding more shares at $14.20 range.
kyri0882 profile picture
@Ronaldo123 If it falls down to $14,20 you must be very cautious. It could bounce up, or crash even lower. On the second case, you must really wait and see how low it will fall. We are at a very crucial point right now. There is "always" the support at around $13,8, but if the markets keep falling, and of course fintech will have no chance and crash even harder than the rest of the market, Its a very difficult situation right now. If you feel comfortable that the huge support at $13,8 will hold forever, then its cool. Its all about hope after all. Its the only thing left right now. At least the volume is low at today's drop.
@kyri0882 I just added some at $14.12. Let's see how it goes. I still think sofi is way oversold here. It should be at least $20 with the pending charter bank approval (can happen anytime soon) and school loan suspension expiring on May 1st (revised from Feb 1st by Biden).
kyri0882 profile picture
@Ronaldo123 Certainly a nice entry point even for the short term(assuming it will bounce back). Although IMO tomorrow will fall another 5% or even more, this week will be very painfull. I wont be surprised if it goes down to $12(IPO price), even this week. I also dont think that the bank charter will play a big role to the upside. Maybe a 5%-10%. I do think it will be granted, but most likely after the super bowl or around March-April. But thats my opinion. Until this point my friend, the stock could be at round about $9 or lower. If it keeps falling like that. I dont see any reason not to though. No positive catalysts there for any fintech stock. Look the other ones how they get crashed. Its so sad. Ok today everything is down, but 8 out of 10 green days in the markets, fintech makes the exception and its red. One day fintech was green, and the other sectors were red. So its very rare. Im starting to get really dissapointed with my decision investing in this sector. Just to be honest. Why should this whole situation change? Noone can give the right answer.
kyri0882 profile picture
hmm $14,47 is the next stop. If the stock closes today or tomorrow under this price we are stop making higher highs and higher lows in our uptrending channel, and the next stop is the $14,20. If we close under it and break under our channel.... only God knows how low can this stock go. Apparently we did only a leg up before the next downtrend. MACD is slowly turning negative again in a few days time too. RSI at 40 is way oversold and shows absolutely no power for a move to the upside. Apparently noone else except us here in SA believe in this company. We are convinced of SOFI and its management and how they grow, but the big money just dont bother investing a single dollar. Sad.
kyri0882 profile picture
Im only curious about 1 thing. When SOFI hits the $14-$14,5 levels again(today most likely or max tomorrow), if the CEO buys again. Until now he did it 3 times. At least that could be a bright spot in the black hole we are in now.
Wow, great article!
Superstocks Seekers profile picture
@Tyler Okland Always like your style of writing. It makes the reading more enjoyable.

Agree with the growth direction of SoFi in becoming a FinTech Super App, which provide diversification for resilience during any market situation. Evident now that although student loan being temporary impacted, the other products can keep SoFi up and growing.
Also, definitely aid in expanding on its TAM over time and skew the LTV/CAC in SoFi favor.

My only concern is the focus and allocation of internal resources. The only issue for vast portfolio of products is the internal competition for the talents and resources. Hopefully SoFi have a culture and leadership team that can manage this well.
Still can vividly remember Microsoft problem early on when they wanted to do everything and end up with lots of lousy products beside their core. Its an issue for Super App because the bad products create negative reinforcement too.

Anyway, definitely looking forward to SoFi executing well ahead and the bank charter.
Tyler Okland profile picture
@Superstocks Seekers That’s an interesting concern I hadn’t thought about. Agreed, super app is irrelevant if focus is lost and all the products are poorly made. So far so good though.
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