Shares of SoFi (SOFI) are on the rise on Wednesday after Jefferies analyst John Hecht initiated coverage of the name with a Buy rating and a price target of $25. The analyst believes the company's "flywheel' can continue to drive significant user growth, product adoption, and margin expansion. Meanwhile, a survey conducted by Jefferies showed that neobanks and their fintech counterparts are "rapidly" accumulating market share and have big potential, but with "some barriers to overcome."
SIGNIFICANT USER GROWTH: Jefferies analyst John Hecht initiated coverage of SoFi Technologies with a Buy rating and $25 price target. The analyst believes SoFi's "flywheel," designed to cross-sell the company's "exhaustive" consumer finance product suite, can continue to drive significant user growth, product adoption, and margin expansion. Member growth is key to SoFi's strategy as a direct driver of revenue expansion, noted Hecht, who projects 46% average revenue growth through 2025. In addition, he noted that SoFi has made significant progress as it seeks a Federal bank charter and while the impacts of the charter are not factored into long-term guidance or his estimates, he thinks the addition of a bank charter would add about 30% in incremental adjusted EBITDA relative to his current base case estimates.
Last week, Mizuho analyst Dan Dolev started coverage of SoFi Technologies with a Buy rating and $28 price target. SoFi is a one-stop shop digital financial services company that is in the "midst of a powerful transition to a full-fledged mobile-first, super-app neo-bank," Dolev argued. The analyst believes this could "accelerate a virtuous cycle" of increased engagement, boosting revenue and profits. Further, Dolev told investors that he sees path to a 40% sales growth by 2025.
SURVEY SAYS: The banking industry has evolved from its traditional brick-and-mortar nature into one where digital and mobile distribution and online-only "neobanks" have a significant prevalence, Jefferies' Hecht wrote in another research note to investors. The analyst pointed out that neobanks and their fintech counterparts are "rapidly" accumulating market share, with nearly 10% of the population having an account with one of them. According to his firm's survey of consumer banking preference, neobanks have potential, with neobank adoption in the relatively early stages and a growing acceptance toward an online-only bank.
However, there are still some barriers to overcome as 60% of respondents listed deposit security as their primary concern, followed by 55% of respondents expressing that a nearby branch is a key priority for holding an account, the analyst noted. Furthermore, Heckt highlighted that about 40% of new accounts opened at competing banks were driven by better interest rates, which has historically been an advantage for neobanks given their lower operating costs.
PRICE ACTION: In Wednesday morning trading, shares of SoFi have gained nearly 9% to $16.48.
SoFi Technologies
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