With the rise of digital payments and online financial services, there is a secular tailwind, and many of the fastest-growing brands are in the space. We examine two stocks positioning themselves to reap the rewards of a changing financial landscape in the coming years.
SoFi Technologies Inc: Bull v.s. Bear arguments
SoFi Technologies Inc (NASDAQ: SOFI) is an American online financial services company and is one of the younger players in the fintech space.
SoFi wants to be the “one-stop” shop for personal financial services. It offers a suite of products such as credit cards loans, investing, SoFi money, and many other products. The acquisition of API and payments platform Galileo in 2020 lays the foundations for SoFi’s business-to-business fintech offering. Galileo powers the SoFi Money platform and other players such as Revolut, Robinhood and means that SoFi will benefit as fintech adoption increases across the board.
SoFi continues to expand its user base, adding 377,000 new members in Q3 2021, reaching a total of 2.94 million. This means there is a greater ability to cross-sell along with improving economics as it scales. Revenue in Q3 2021 reached $272 million, an increase of 35% year-over-year (YoY), and the company also raised full-year guidance.
Another exciting development is that the company applied for its bank charter and the acquisition of Golden Pacific Bancorp was a strategic step in this process. This would help with underwriting its own loans, providing better interest rates and other benefits.
SoFi remains a small player in a large space, with prominent players such as PayPal aiming to create a “Super App”. It is also operating at a loss which totaled $30 million in Q3. The majority of its revenue is derived from loans, and a pause on student loan repayments has created headwinds for the company.
Block: Bull v.s. Bear Arguments
Block (NYSE: SQ), formerly known as Square, is a payment and technology company led by CEO Jack Dorsey. This rebrand aims to differentiate the different aspects of its business and undoubtedly to represent its focus on blockchain.
Despite the recent drop in its stock price Block continues to perform and, including Bitcoin, which it holds on the balance sheet, reported 27% revenue growth YoY in Q3, reaching $3.84 billion. The majority of its revenue is generated by its Cash App segment, which has approximately 40 million active users, although its Seller segment generated over 50% of its $1.13 billion in gross profit.
The company is not afraid to expand its ecosystem through acquisitions such as buy now, pay later player Afterpay. The Afterpay acquisition should benefit customers and merchants and help to connect its Seller and Cash App ecosystems. Square is also expanding internationally and entered France in Q3 with an ecosystem of products and services.
Although its focus on Bitcoin could be seen as a positive, the digital currency is highly volatile, which will impact both its balance sheet and overall business. It is also facing competition from all angles, and the successful integration of Afterpay is far from a foregone conclusion.
Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.