Can SoFi Become a Top-10 Bank? Here's Exactly How It Could Get There.
Key Points
SoFi may be a mere upstart compared to the big banks, but it is growing a lot faster.
It's targeting young consumers who are growing with the bank -- thus boosting revenue.
Based on price-to-book value, SoFi stock is valued well within the normal range for banks.
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The stock of SoFi Technologies (NASDAQ: SOFI) has been absolutely crushed this year, and it just keeps sliding, down 42% year to date. Is the market overreacting? CEO Anthony Noto has mentioned several times that his goal is for SoFi to become a top-10 bank.
Right now, it's the 50th-largest U.S. bank by assets, and it's been slowly rising through the rankings. It has $46 billion in assets, way behind the 10th-largest bank, Bank of New York Mellon, which has $381 billion. It will take a while for it to catch up, but there's a path, and the stock could follow it.
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The bank for the young professional
SoFi may be a small fish in a big pond, but it's a lot faster than nearly any of its competitors, which is why it has a chance against the leaders of the pack.
A SoFi office. Image source: SoFi.
It isn't likely to pose great competition for the top banks, like JPMorgan Chase and Bank of America. JPMorgan Chase stands atop the banking crowd significantly, with $3.7 trillion in assets, while BofA has $2.6 trillion in assets. These banks, and several other large ones, have global operations and significant wealth management and investment banking segments. It's possible that SoFi will eventually launch these kinds of services, but today, its game is consumer banking.
It has a leg up on other banks, even digital ones, in its focus on the student and young professional. This cadre is often finishing college and starting out in a career, and SoFi's strategy is to grow with them over time. That's already happening, as product growth outpaced member growth, 39% to 35% year over year in the first quarter. Cross-selling accelerated to 43% in the quarter.
High growth, attractive price
SoFi is growing rapidly. Adjusted net revenue increased 41% year over year in the first quarter, an acceleration. That's high for any stock, and especially for a bank. Consider how fast SoFi's assets have increased over the past five years in comparison with the top-10 largest banks in the U.S., which include, in addition to those mentioned above, Citibank, Wells Fargo, U.S. Bank, Capital One, Goldman Sachs, PNC, Truist, and Bank of NY Mellon.
SOFI Total Assets (Quarterly) data by YCharts.
If SoFi's assets gain 600% again over the next five years, and the larger banks increase at a similar pace to their five-year growth, SoFi could easily slide in among the top 20 banks. It may not grow quite that fast, but remember: Growth is accelerating today. And even if it begins to slow down, this gives you an idea of how big this opportunity is.
Will SoFi stock reflect that growth? Consider that on a price-to-book basis, SoFi is well within the normal range for valuation at its lower price.
SOFI Price to Book Value data by YCharts.
So investors can expect SoFi stock to reflect its growth over time as it leaps over today's larger banks.
Should you buy stock in SoFi Technologies right now?
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Bank of America is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Jennifer Saibil has positions in SoFi Technologies. The Motley Fool has positions in and recommends Goldman Sachs Group, JPMorgan Chase, Truist Financial, and U.S. Bancorp. The Motley Fool recommends Capital One Financial. The Motley Fool has a disclosure policy.
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