$30 target from very smart analyst following a range of financial service companies at Rosenblatt published excellent in depth best report so far on SOFI. Conclusions:
We initiate coverage of SOFI with a BUY and 12-month price target of $30. The incumbent
legacy banks face a challenging road ahead as a new wave of digitally native and mobilefirst banks rush into the market. Challenger banks like SoFi command a powerful cost
advantage over incumbents which will lead to dramatic disintermediation over the next 5-10
years, leaving substantial primary bank accounts, revenues, and market value up for grabs.
As they mature, competition and consolidation are likely to follow. But for now, challenger
banks face a “jump ball” opportunity to seize market share from the old guard... and SOFI
is well-positioned to capture a significant amount of the value hanging in the balance.
The network effect levels the playing field for challenger banks vs. incumbents: We
continue to have a very positive outlook on the challenger banks as they continue on their
path of disrupting the incumbents. Challenger banks have a significant cost advantage,
with customer acquisition costs (CAC) typically ranging from $20-$50 vs. up to $1,000 for
traditional banks, according to our research; this is possible due to a de minimus physical
footprint and viral marketing / P2P network effects as evidenced by the success of Cash
App (SQ: Buy) and Venmo (PYPL: Buy). The shift is already underway, as young people
ask their parents to "Venmo them" some money. This is a much more powerful customer
acquisition tool as compared to checking your bank balance or receiving promotional credit
card offers in the mail. This is critical to the success we expect for challenger banks.
Proprietary digital wallet survey data informs our view: We conducted a Digital Wallet
Survey to sanity check our expectations and gauge consumer preferences for digital wallet/
challenger bank adoption. While only 5% of the >250 respondents we surveyed consider a
challenger bank or digital wallet their primary bank account (a metric we view as the most
reliable indicator of a valuable user) today, we note that ~40% of respondents are likely
or very likely to choose a digital wallet for their next bank account, and ~20% plan to do
so in the next 12-months. As a result, we expect challenger banks to account for ~15% of
primary bank accounts in the US by 2025, tripling their market share and acquiring new
monetizable users, largely at the expense of traditional banks.
Pending national bank charter is a meaningful catalyst: In March 2021, SoFi entered
into an agreement to acquire Golden Pacific, a regional bank (with a bank charter), and is in
the process of potentially obtaining a bank license through a change of control option (rather
than a de novo application). If successful, the bank charter would provide an adjusted
EBITDA uplift of 25-40% to our estimates. Additionally, we estimate that the bank charter
would add >25% upside to shares of SOFI. Assessing the probability of success is more
difficult as we draw parallels to both the successful acquisition of a bank charter from
Square in 2021 and the voluntary withdrawal of a bank license application from Robinhood
(private) in 2019. Net/net, we conservatively exclude the impact of the bank charter in our
model, but we place a ~50% chance on the likelihood of obtaining the charter, which would
serve as a substantial upside catalyst (illustrative impact detailed on page 16).
Valuation & estimates: Our 12-month price target of $30 represents 9x our 2025
revenue estimate of $3,659mn. SoFi has primarily operated in the lending business, which
comprises high-value, low churn customers. As a result, SOFI appears expensive on a
value/user metric, however, we believe the best way to value SOFI is on a revenue multiple,
as it accounts for the significantly higher amount of revenue per user
