SoFi vs. Sezzle: Which Fintech Stock Is the Better Buy?

SoFi (NASDAQ: SOFI) and Sezzle (NASDAQ: SEZL) are two of the better-known emerging fintech players. SoFi has been around longer, but Sezzle's explosive returns during the past five years have put it on the map.

SoFi aims to offer traditional banking services at a discount due to its online model, while Sezzle is a buy now, pay later (BNPL) platform that is looking to diversify. Here's what investors should know if they only want to invest in these stocks.

Image source: Getty Images.

Sezzle is growing faster

Most growth investors like to start by looking at year-over-year trends for revenue and net income. If these numbers increase at an accelerated rate, it can pave the way for higher stock returns.

Although both companies are growing nicely, Sezzle is the clear winner. Its Q2 results revealed 52% year-over-year revenue growth, compared to SoFi's 43% growth rate.

It isn't just a one-quarter fluke, either. Sezzle has a five-year revenue compound annual growth rate (CAGR) of 50%, while SoFi has a 39% CAGR during that stretch. The numbers are similar when looking at the past three years as well.

Growth seems to be picking up for Sezzle; it reached 854,000 active subscribers in the second quarter, a 76% year-over-year increase. SoFi is also gaining subscribers at a nice rate, but its 35% year-over-year member growth rate isn't as impressive.

SoFi is more diversified

SoFi offers a wide range of financial services. You can open a bank account, take out a loan, get credit cards, invest in stocks, and access other financial resources. Sezzle has been diversifying, but almost all of its revenue still comes from its BNPL model.

Sezzle makes money from merchant fees and subscription plans that give members more perks. The subscription plans let Sezzle offer more flexibility to navigate consumer markets, but any meaningful slowdown in the BNPL industry will hurt Sezzle. The company doesn't have backup businesses like SoFi, which managed to perform well and diversify nicely when student loan payments were paused by the federal government during the pandemic.

Being a one-trick pony isn't necessarily a bad thing. Meta Platforms has become one of the world's most valuable publicly traded companies almost exclusively because of ads on its social media sites. Meta is trying to diversify, but ads are still the defining category.

It's the same setup for Sezzle, but the company has been working toward becoming an all-in-one financial platform.

Sezzle is currently seeking a federal bank charter so it won't be caught off guard if states tighten rules around BNPL. States aren't trying to ban BNPL, but new regulations can limit future growth. For instance, New York passed the BNPL Act, which caps interest rates at 16%.

Sezzle has the better valuation

Sezzle is less diversified than SoFi, but it's attracting many consumers to its BNPL platform. Just as SoFi figured out how to turn a student loan business into a fintech platform, Sezzle can use its initial BNPL successes as a launchpad for future businesses.

SoFi is ahead of Sezzle in that regard, but if you look at current valuations, Sezzle is more attractive. It trades at a price-to-earnings (P/E) ratio of 26 compared to SoFi's P/E ratio of almost 39. Sezzle's lower valuation goes nicely with higher financial growth rates.

It primarily comes down to whether you prioritize diversification or high revenue growth. Sezzle is growing faster, but SoFi's diversification will be extremely valuable if the BNPL industry slows down.

Also, Sezzle only projected 35% year-over-year revenue growth in full-year 2026, implying a meaningful slowdown in the second half. While Sezzle has a history of beating and raising expectations, it's worth monitoring growth rates to see if they taper off quickly. This explains why Sezzle, which shed more than 20% of its value in August, is still up by more than 80% year to date.

SoFi may be safer, but investors willing to take on more risk in exchange for faster growth may want to consider Sezzle. If the company beats and raises its forecast after reporting Q3 earnings, that might reignite the stock's momentum.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Sezzle. The Motley Fool has a disclosure policy.