Better Buy: SoFi Technologies vs. Robinhood Markets
When Robinhood Markets ( HOOD -1.72% ) made public last July, it was one of the most anticipated IPOs of the year. But the online trading platform that revolutionized and disrupted the industry has fallen on hard times since then, and its stock price has plummeted.
It hasn’t really been an easy road for Sofi Technologies ( SOFI -3.18% ) that is, since its IPO in June 2021. SoFi is a bit of a hybrid – part bank, part online broker, part tech company. Which of these two fintech is better to buy?
1. Robinhood Markets
With its goal of democratizing investing, Robinhood disrupted the industry soon after its founding in 2013. Not only did it popularize free trade, which changed the entire industry, but the ease of its mobile platform has brought millions of new investors to stock markets.
The stock went public on July 29 at around $35 per share and doubled in a week to over $70 per share. Since then, it has fallen to its current price, around $10 per share. Since the beginning of the year, it is down about 42%.
So while Robinhood has disrupted and revolutionized the business, its much larger competitors have followed suit, eliminating its competitive advantage and eating away at its revenue. Robinhood peaked at 21.3 million active users in the second quarter of 2021, but has seen that number drop over the past two quarters to 18.9 million in the third quarter and 17.3 million in the fourth quarter. Additionally, revenue per user fell from $137 in Q1 2021 to $64 in Q4.
Revenues have fallen with him and the company continues to operate with a net loss. In the fourth quarter, revenue fell from $565 million in the second quarter to $363 million in the fourth quarter, with a net loss of $423 million. And revenue is expected to fall in the first quarter of 2022 to $340 million.
Since Robinhood caters to new, young, and less affluent investors, the market downturn has had a greater effect on its clients than on clients of large traditional brokerages. The company has also run into a slew of legal and regulatory entanglements stemming from the “meme stock” frenzy its platform has helped fuel over the past two years.
SoFi Technologies also has an online brokerage, but it is primarily known as an online lender, as it got its start in the student loan market. Now, it offers all kinds of loans, including mortgages, as well as banking, investments, and other financial services through its app. It also has a banking-as-a-service (BaaS) business, providing the technology platform to help other businesses build their own digital banking businesses.
Like Robinhood, SoFi has also seen its share price drop since its IPO. It went public on June 1 at around $20 per share, and now it’s trading at just over $6 per share. It is down 59% since the start of the year. It had become overvalued and was caught up in the correction in growth stocks that began last fall. Currently, SoFi’s price-to-sales ratio is around 4, down from a high of 18 last year.
While its stock price tends to fall, its earnings and other metrics tend to rise. In the fourth quarter, revenue jumped 67% year-over-year to $285 million, and for all of 2021, revenue was up 74% to $984 million. However, the company recorded a net loss of $111 million due to higher expenses.
Other positive signs are growth in the number of members or users. By the end of the fourth quarter, it had 5.1 million members, roughly doubling year over year, and the number of SoFi products they were using also nearly doubled. In addition, the BaaS branch has seen the number of accounts it supports increase to 100 million, compared to 60 million at the end of 2020.
For 2022, SoFi forecasts a 55% increase in revenue.
What’s the best buy?
SoFi seems like the best option for several reasons. For starters, it’s growing revenue and users, while Robinhood has stalled or gone the other way. But beyond that, there’s just more to love about SoFi’s growth prospects. He has several sources of income, and all of them are growing.
It has just made a major acquisition in its BaaS technology business, buying Technisys, a banking platform that syncs with its existing Galileo platform that extends and improves what it can offer its customers. SoFi also received a banking charter in the first quarter, following the acquisition of Golden Pacific Bancorp. It can now offer deposits and no longer has to partner with third-party banks to provide loans, which has doubled effect of saving money and increasing interest income. . Ultimately, SoFi has the lofty goal of being a one-stop financial services platform and the Amazon Fintech web services.
The path to profitability and growth seems much clearer and less difficult for SoFi than for Robinhood.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.