SoFi is a fin tech company which has a multitude of services, ranging from cash management/credit card, loans(student, home, business, etc), insurance(life, home, and renters), and brokerage.
Brokerage
Perks of SoFi brokerage:
- Fractional Shares
- Cryptocurrency
- 0$ Commission Trades
- traditional, roth, and regular accounts
Cons of SoFi Brokerage
- no options trading
- Cryptocurrency (1.25% per transaction) compared to variable rates on other crypto platforms, such as Coinbase (up to 1.49%) or Binance (0.1%)
How do brokerages make money?
Traditionally, brokerages made money off trades through transaction fees, but with 0$ trades, brokerages make money off bid-ask spreads (buy and selling difference of stocks) as well as perks to users, such as increased trading hours, margin, etc. Thus, with more users, the brokerage earns more. In 2019, Robinhood (another investment mobile platform) made about 1.3$ per 500$ transaction. In 2018, Robinhood made $69 million off 6 million users and in 2019, $91 million off 10 million users. Thus, conservatively, Robinhood makes $9.1 million in revenue per 1 million user.
How much does SoFi make?
So-Fi only has 1 million customers currently, and not all customers are using the investment product. Thus, assuming 25% of all customers are using the product, we could potentially see a (conservative) $2 million revenue per 250,000 users.
Loans / Cash Management
Perks
SoFi offers credit cards with perks of up to 10% cash back on certain services, such as netflix or spotify if you deposit 500$ into their cash management system every month.
Additionally, their credit card offers up to 2% cash (1% on all eligible purchases and 1% for paying debt, save, or investing with sofi) back on purchases.
How do loan provider companies make money?
They provide benefits, such as interest rates for people who save money with them. This is Annual Percentage Yield. SoFi’s is 0.25% per yr. Then, they loan out to students, home buyers, etc to which they charge variable rates, ranging from ~2% to 10+% Annual Percentage rate. Since student loans is one area where people are unable to declare bankruptcy to nullify these loans, it is a solid way to make the difference.
Some notable companies include LendingClub which made $760 million revenue at a margin of 17.8% (EBITDA) at 3 million customers. This roughly equates to roughly 45 million earnings per million customers (EBITDA).
How much would SoFi make?
Assuming 0.75 of SoFi customers utilize SoFI for loans, this would equate to roughly 34 million in (EBITDA) revenue.
Insurance
SoFi offers numerous insurances. However, these are from other companies and SoFI is redirecting you to those insurance companies, taking a percentage of the recommendation cut, which is a tiny fraction of margin. Thus, I won’t be including it in the sales.
SoFi does have a high customer satisfaction rating & numerous products all bundled up into one mobile application. However, in each area, it doesn’t excel. Thus, even with the 1 million users in 2020 (not sure what 2021 numbers are), I’m not entirely sure the revenue justifies the high 6 billion dollar valuation. However, this research is based off solely my own deep dive and I have yet to compare this to their investor slidedeck as I think starting from a clean slate prevents biases. Thus, I’ll continue delving into this company, but from a first glance, while it does seem there is a high ceiling to grow, it isn’t excelling in any area, but if customers are satisfied with bundling, I could be wrong.