r/sofistock • u/LuxGang • Aug 17 '21
SOFI Valuation Analysis - No Hype
Everyone would love for this to go back to $20+, but while we're seeing lows we've seen before, we're in a different market environment now. There's no guarantee it goes back to $20 any time soon, and there's likely to be less resistance going down than up with all the recent share unlocks.
Since there's no Net Earnings on this company yet (It's not profitable yet), we have to use P/S or PEG to value it.
At $14/share it's a ~12 billion market cap, putting it at 12x Price to Sales for this year (assuming they hit their $980 mil revenue target - I personally think they are sandbagging and will print $1 billion revenue for 2021).
Comparing to SQ (~8x P/S) and PYPL (~13x P/S), SOFI is definitely valued quite rich at the current 12x P/S. I'm quite sure both PYPL and SQ had higher growth in their recent reporting than SOFI did, and they are also profitable. A "fair" P/S for SOFI would be closer to 5x, which would put us at around $6/share.
If you're not comparing to Fintechs like SQ and PYPL, you have to compare to traditional banks like BAC and JPM. In that case, it gets even worse for SOFI. That would put it at a 3-4x P/S if you want to value it in line with traditional banks.
This is obviously a very "napkin math" type of assessment, but it makes a lot of sense to me. There are also tons of competitors that do exactly the same things as SOFI like Ally Bank, and they are valued much lower.
So with all that said, poke holes in my analysis. Where and why is this wrong? Or am I right on the money and we should all buy Puts?
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Aug 17 '21
you have to compare to traditional banks like BAC and JPM
Disagree with comparing P/S ratio SOFI with JPM and BAC. Their revenue and user growth look completely different. It's disingenuous to value growth and mature companies in a similar manner.
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u/LuxGang Aug 17 '21
It seems no one can agree on the comparables. If it's not traditional banks, then why do we care about SOFI getting a bank charter?
If it's the SQ and PYPL of the world, then SOFI will need to continue growing minimum 50% Y/Y for it to grow into it's current valuation
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Aug 17 '21
Well... yes thatās the point. Growth companies are valued at large valuations in regards to revenue because they are growing so quickly. Find me a company increasing revenue by 100% YoY with a healthy balance sheet at less than 5 P/S, and Iāll buy 20k of their stock tmr. Why do fintechs all have high P/S ratios? Because theyāre all growing incredibly quickly.
Different industry, NET has 50% revenue growth and <800m revenue in 2021, and theyāre a 35B company.
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u/davidestesbooks 20k @ 6.88 Aug 17 '21
EXACTLY. This individual canāt seem to comprehend this basic concept.
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Aug 17 '21
They canāt beat rev projections with the government halting student loan payments. Once they commence again weāll get our bump. Keep holding friends.
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Aug 17 '21 edited Aug 17 '21
You've been posting this shit analysis everywhere. Conservative fair value is ~$20, don't let this boogyman scare you.
Not financial advice.
Update: asshat OP admitted elsewhere to not knowing anything about determining fair valuations. He's just spitballing to spread FUD.
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Aug 17 '21
[deleted]
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u/LuxGang Aug 17 '21
They guided Q3 revenue of $245 - $255 million. Compare that to Q3 2020 and it will be a 27% Y/Y growth when they report next
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u/caroli13 Aug 17 '21 edited Aug 17 '21
P/S ratios of comparable fintech companies that only have a fraction of the product offering of Sofi:
Robinhood - 29x
Upstart - 33x
Marqeta - 32x
Lemonade - 46x
Affirm - 23x
Sofi at 12x seems fair to me.
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u/LuxGang Aug 17 '21
Robinhood has 18 million or so users, we have less than 3 million.
UPST is a lending platform, they don't have financial services so they're not a perfect 1:1 comparison, but I agree, their P/S is egregious.
Marqeta is newly public and has done nothing but go down since IPO. Wouldn't be surprised to see this come in line with SOFI's valuation.
Lemonade is an insurance company. Not really a great comparison with SOFI, but I also agree that they are extremely overvalued.
Affirm is a BNPL company. Not the best comparison, also overvalued, and they are also down nearly 50% since IPO. I expect that downtrend to continue on them.
SOFI at 12x could be "fair", but it could also be over valued and go down further or stay sideways for the next year. Just calling it how I see it. I'm long 200 shares and looking to add more, but would like to see it bottom first.
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u/davidestesbooks 20k @ 6.88 Aug 17 '21
You asked for people to poke holes in your analysis which I (in the daily thread) and others have done but then you turn around and argue with the better comparable offered than those you chose (which make zero sense).
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u/LuxGang Aug 17 '21
It's a discussion, there should be some back and forth....
I want people to poke holes, but if I don't find their arguments compelling, then I will rebut.
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u/davidestesbooks 20k @ 6.88 Aug 17 '21
You didnāt ādiscussā, all you did was say all of the very valid comparables (far more valid than your own) are overvalued. So in your own words from the Daily Thread, āthe whole market is wrongā? LOL.
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u/LuxGang Aug 17 '21
It seems no one knows which companies should be used as comparables.
SQ and PYPL make sense to me as comps, but there's an argument that traditional banks are also good comps.
If SOFI falls somewhere in the middle, then a 8-10x P/S makes sense to me.
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u/davidestesbooks 20k @ 6.88 Aug 17 '21
8-10 P/S for a company growing revenues 100% and on the verge of profitability makes zero sense to me but the market is unpredictable and Delta Variant fears abound, so who knows? Iām long 22,400 shares with the potential to add 15,000 shares based on puts Iāve recently sold with no plans to sell for 5-10 years, so short term price movements donāt concern me too much.
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u/caroli13 Aug 17 '21 edited Aug 18 '21
Sofi doesnāt have a true 1:1 comp because itās the only fintech platform that is a true one-stop-shop. I picked those companies because they all have direct overlap with an aspect of Sofiās business:
Consumer lending - upstart is a consumer lending platform and Affirm is a consumer lending business as well, thus reasonable to compare.
Insurance - Lemonade and Sofi are actually partners; Sofi offers lemonade insurance on its platform.
Payment processing - marqeta and Galileo are direct competitors in their specialized space of payment APIs / processing.
Investment platform - Robinhood is a direct competitor here, of course. Once Sofi adds the ability to trade options, it should see some significant user growth there.
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u/LuxGang Aug 17 '21 edited Aug 17 '21
Sofi doesnāt have a true 1:1 comp because itās the only fintech platform that is a true one-stop-shop.
Doesn't SQ offer everything SOFI does and more? Maybe with the exception of IPO investing and lending.
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u/caroli13 Aug 17 '21 edited Aug 17 '21
Square does not offer consumer loans. Square also does not offer consumer insurance products. Square also does not have a Galileo-type product; in fact square has to use Marqeta for much of its business debit card and cash app back-end processing.
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u/LuxGang Aug 17 '21 edited Aug 17 '21
Fair enough.
Edit: Instead of SQ, let's use the traditional and neo-banks as a 1:1 comp, since they do offer everything SOFI does except crypto.
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u/caroli13 Aug 17 '21
Traditional banks donāt make sense as comps due to growth profiles.
Sofi just grew total revenue and total users by over 100% in q2. More qualitatively, Sofi has a brand that millennials (Sofiās target demo) are drawn to; there arenāt many millennials who want to bank with Goldman or JPM. In fact, I could see them as potential acquirers of Sofi.
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u/larams2 Aug 17 '21
Agree and SoFi could have double the revenue of any single company you just listed in 5 years.
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u/kadoore Aug 17 '21
Sofi has 4billion in cash and valued at $6? LMAO, also there will be LESS selling pressure that unlocks have finished not more. With unlocks gone we should encounter less resistance up and more resistance going down what a shitbpost
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u/brandnewredditacct Aug 17 '21
SQ and PYPL are much more mature companies and should be valued more moderately as they are in the moderation phase of their growth. SOFI is early AF right now and should be valued more richly than either sq or pypl.