The US fintech market is still in its infancy, but SoFi Technologies (NASDAQ:SOFI) appears to be stealing a march on its rivals amid a whirlwind second half of 2024. Could the personal finance firm really become a dominant force in the industry's future?
With forecasts suggesting that revenue in the US fintech sector is set to reach $70.5 billion by 2028, there's ample opportunity for a changing of the guard in terms of a finance industry that's still dominated by traditional players like Visa and Mastercard.
Although new entrants like Stripe and Revolut have been busy making a name for themselves, SoFi's rapid growth in recent months has led to JP Morgan analyst Reginald L. Smith claiming that the firm could become the American Express of fintech.
SoFi Technologies rallied 115% between October and November 2024, and with a number of strategic partnerships and a strong innovation pipeline, the stock may be well-positioned to ride the fintech boom higher.
Winning Admirers on Wall Street
SoFi's 2024 success has been down to consistent expectation-beating performances that have significantly lowered institutional short interest in the stock.
In its third-quarter earnings report, SoFi Technologies raised its full-year revenue guidance and reported a total net income increase of 30% to $697.1 million in comparison to the $537.2 million raised in Q3 2023.
Crucially, SoFi overturned a deficit of $266.7 million in the previous year to record a net income of $60.7 million. Adjusted net sales also weighed in at $689.4 million, representing an annual growth rate of 30%.
Versus a deficit of $266.7 million in the previous year, net income for the quarter was $60.7 million. Reflecting a 30% annual growth, adjusted net sales came in at $689.4 million.
The results, which CEO Anthony Noto attributed to product innovation, brand building, and consistent growth, prompted SoFi to revise its full-year 2024 projections higher, to $2.47 billion, up from previous expectations of $2.43 billion.
SoFi Technology's consistent outperformance has seen short interest fall by as much as 8.38% over the past three months, with 148.72 million shares sold short.
These figures, which represent 14.43% of all regular shares available for trading, suggest that Wall Street is beginning to believe in the long-term potential of the personal finance firm.
Unlocking SoFi's Potential
In terms of SoFi's operational growth, the third quarter was a major success story. The platform added 756,000 new members and 1.1 million products over the three-month period and appears to be readying more products and services for launch.
With recent earnings reports suggesting that the firm has become sustainably profitable, we may see SoFi begin to realize its significant potential.
SoFi is also well-positioned to take advantage of key growth opportunities throughout the fintech industry as the landscape continues to mature.
The mobile payment market in the United States is projected to exceed $607.9 billion by 2030, and SoFi's mobile-focused operational model is set to not only take advantage of this growth but also provide powerful supportive open banking insights to drive greater long-term customer engagement.
SoFi is also making strides in facilitating commercial clients, and in October 2024 adopted its subsidiary Galileo's cloud-based Cyberbank Core to power payment services for commercial use cases.
Supporting debit, prepaid, ACH, and wire transactions and their associated banking services, Cyberbank Core stands to open SoFi up to the potential of more institutional usage.
October also saw Nova Credit expand its multi-year partnership with SoFi, illustrating how the company is not only building but retaining its relationships. The agreement helps SoFi to augment its members’ experience and provides access to consumer-permissioned bank data and cash flow analytics as a means of building a more bespoke service to its customers.
Could SoFi Reach New Heights in 2025?
Although SoFi has grown significantly in the second half of 2024, the stock still remains more than 35% lower than its 2021 peak value. Could the arrival of President-elect Donald Trump help the fintech firm recapture its form to achieve fresh growth in 2025?
"Historically, elections have led to short-term market volatility, but long-term trends typically favour growth regardless of the party in power," notes Maxim Manturov, head of investment research at Freedom24. "In the 2016 election, sectors such as energy, financials, industrials, commodities and small-cap made significant gains following Donald Trump’s victory, fuelled by expectations of pro-growth policies and deregulation."
Manturov's suggestion that optimism surrounding Trump's return could see fintech stocks climb higher due to expectations of a return to his pro-growth policies and prospective deregulation-focused strategies.
"However," Manturov warned, "the current economic landscape is markedly different from 2016, necessitating a reassessment of the investment approach."
Expectations over deregulation and the outsing of Gary Gensler from the SEC have certainly brought more optimism to the fintech landscape. But as the US continues to tussle with inflation, the prospect of Trump's tariffs could impact the cost of living and the ability of consumers to use platforms like SoFi for their wealth management.
Is SoFi a Buy for Investors?
The future appears bright for the fintech landscape, and SoFi has a great opportunity to become a leading industry player like traditional finance giant American Express. However, the industry is highly competitive and new challengers are emerging all the time in our current market.
Investing in SoFi stock should be punctuated by cautious optimism. The Trump Presidency will be focused on growth but the economic climate may be more inhibitive than his previous term. However, for an innovation-focused fintech like SoFi, there's certainly more room for growth over time.
On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.
