In this week's installment of Industry Focus: Financials, Fool.com contributor Matt Frankel, CFP®, and host Jason Moser dig into a trio of financial sector earnings. First, the pair talks about the latest results from high-growth fintech SoFi (SOFI -3.74%), and then they pivot to slow-and-steady compounder Boston Omaha (BOC -1.73%). Last but certainly not least, Frankel and Moser take a look at the latest numbers from card payment specialist Marqeta (MQ). 

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This video was recorded on Nov. 15, 2021.

Jason Moser: It's Monday, Nov. 15. I'm your host, Jason Moser on today's Financials show. We're digging into the latest earnings reports for SoFi, Boston Omaha, and Marqeta. Joining me this week, as is often the case, he's back from Vegas, he's a certified financial planner, Mr. Matt Frankel. Matt, welcome back.

Matt Frankel: Hey Jason I got back and I feel like winter started all of a sudden hear [LAUGHTER], it went from the '80s to '50s.

Jason Moser: Yeah, yeah. I imagine there is a bit of a difference there coming back from out West. Real quickly, anything stands out for you on this trip? I know you were interviewing some folks and digging more into real estate while you're out there. Anything you feel like our listeners should know?

Matt Frankel: Yeah. I got to sit down with eXp Realty CEO. It was a really fun conversation. The first in-person interview I've done since COVID started. It was weird actually being in a room with somebody. But it was a really interesting conversation, he let me ask about iBuying and stuff like that because they are traditional brokerage.

Jason Moser: Yeah.

Matt Frankel: And I get his thoughts on where that industry is going and I got an article coming up about it. But generally speaking, he says he's very bullish on the traditional brokerage model and says that iBuying might get to say 10 percent of the market at some point, but that leaves 90%.

Jason Moser: Yeah. I feel like that makes sense. iBuying is going to be something that I think is good for the market, in general, is going to be a nice feature. But I don't think that's the direction that real estate ultimately fully commits to. Those are interesting comments. We'll look forward to that article you have coming out and definitely keep an eye on that iBuying space. Particularly given that recent Zillow news that Matt was just such a big fan of. But I digress, I digress. Matt, let's dig into some earnings reports here. We are wrapping up earnings season and last week we had a few more companies that are a part of our universe support. We'll start with SoFi. It's been a pretty good year for SoFi. So far, the stock is up, I think 12, 13 percent or something like that, outpacing the market. Still a relatively new issue to the public markets. But I know this is a business that you like. You own shares of it, I believe. Talk to us a little bit about the quarter. What stood out to you that made this a good one for SoFi?

Matt Frankel: What's funny as you go on in earnings season, the longer it goes the more growth the companies get. [LAUGHTER] You start out with the big banks that you get into, the regional banks and you to the FinTech and you get to the really new FinTech.

Jason Moser: Like a grand finale of a fireworks show. You're always waiting for that big bang.

Matt Frankel: [LAUGHTER] They save the more exciting ones for last. That's what we saw here. SoFi the numbers look fantastic. The stock reacted appropriately. Two point nine million members, that's almost doubled what it had a year ago, 96 percent, year-over-year growth. It added 377,000 members in the third quarter alone. If you remember what we said last time we were on the show and talked about SoFi, the key is being able to sell cross-sell products because SoFi's average member has something like 1.5 products with the company. Like a personal loan and some might have a credit card or something like that. Products grew at 108 percent year-over-year. Products are growing faster than the member base, which indicates that they are doing a really good job of cross-selling products. They announced one real interesting tidbit is most of their growth is being fueled by just a few of their products. They said between SoFi money, which is their bank account replacement, SoFi invest, which is their brokerage business, and their new credit card, which is very new in the smallest of those three products I just mentioned, drove 79 percent of their new membership base between just those three products and 73 percent of their cross-selling came from those three products. Financial services products, including those three, grew by 179 percent year-over-year. The core lending businesses is doing well, they did 3.4 billion in loan volume between home loans, personal loans, and student loans, which remember they started as a student loan refinancing company. The financial services are the big story here.

Jason Moser: It is fascinating to think about how this business has evolved in what seems like a very short amount of time. It's true financials, a holistic solution, it sounds like it's really becoming. We talk a lot about the environment for banks. When interest rates start to creep back up and it feels like we are obviously headed in that direction. The pace is yet to be determined. But regardless, we talk about how banks typically should benefit from those rising rates and be able to generate a little bit more on that net interest income line item there. Do you feel like it's from those same types of tailwinds or is it really all about products for this company?

Matt Frankel: Well, they do. Right now their lending business a big portion of it still. I said $3.4 billion of loan volume. SoFi's personal loans are typically in the 6-10 percent interest rate range. These are higher interest loans for the most part. That's where the biggest part of their lending business is. They do generally benefit when interest rates rise. Not like a one-to-one relationship, like a lot of bank loans. But it's definitely a big growth driver if interest rates rise. But right now the big story there is the growth in products. If you're growing your bank account customers and you're investing customers by 180 percent year-over-year a small interest rate increase is kind of a footnote at that point. But their priority right now is building up the business. Then eventually just sitting and coasting [inaudible 02:41:32] on the interest income and fee income that they are generating. But right now they are all outgrowth mode, so interest rates are more of a secondary concern.

Jason Moser: Earnings also out for Boston Omaha here last week, Matt and Boston Omaha kind of treading water this year, stock up a few percentage points. Nothing too crazy one way or the other, but this is a business we talk a lot about on this show and in our Foolish [...]. Well, it's another one of those businesses that you like a lot. Seems to be built at least somewhat in that Berkshire Hathaway mold. It seems like it's working. Seems it was another uneventful, if not the good quarter.

Matt Frankel: Yeah. It's uneventful by design, I guess you would call it. Boston Omaha just had its annual meeting this past weekend. It was kind of a Berkshire-style annual meeting, it's obviously not to that same scale yet. But it's in Omaha. They rent out in auditorium just like Warren Buffett and Charlie Munger do every year.

Jason Moser: That's Buffett's nephew, right?

Matt Frankel: It's his great-nephew.

Jason Moser: Nephew. Okay.

Matt Frankel: It's I think your sister's grandson, I believe. That would make great-nephew.

Jason Moser: But now you've got me going like the space balls and the dark helmet, those brothers, uncles, cousins, nephews, former roommate.

Matt Frankel: Warren Buffett has no involvement with Boston Omaha, on any official level, I will say that, but it's definitely modeled after Berkshire Hathaway. Very early stage. I wanted to get to their meeting this past weekend, but I didn't. I can't go Vegas and then Omaha back-to-back. [LAUGHTER] I want to go home at some point. The billboard rentals are still the majority of their business, which is important for all investors to know. That's more than half of their revenue comes from the billboard business. That was up 13 percent year-over-year rebounding nicely from the pandemic when a lot of companies stopped advertising that much. Broadband revenue is the fastest-growing part of its business, that more than tripled year-over-year. But that was acquisition fueled not necessarily organic growth within the business. They acquired some big wireless provider or not wireless, fiber network providers. On the bottom line, they posted a $0.89 earnings-per-share loss. But it wasn't very meaningful if you remember with Berkshire, we say that their earnings-per-share isn't meaningful because it reflects the unrealized gains in their stock portfolio.

Jason Moser: Yes.

Matt Frankel: Same thing applies here. They recorded a $33.7 million loss in quotes from investments. First of all, for a company that's barely cracked a billion dollars in market cap, that's a big loss.

Jason Moser: Sure.

Matt Frankel: That's because their biggest stock position is Dream Finders Homes, by far, that went public and that stock declined significantly. But they didn't sell. It's not a realized gain, it's an unrealized gain in their investment portfolio. The EPS number really isn't that meaningful book value which they consider to be their biggest barometer of growth. It's not a perfect metric, but it shows how well they're growing intrinsic value overtime, that grew 22 percent year-over-year.

Jason Moser: Nice.

Matt Frankel: Nice book value growth. I will end with just a couple of things to watch with Boston Omaha before you add, you can ask me whatever you want about it. Hopefully I will know the answer. They make it tough. They just issued a 10Q. They don't really go through earnings highlights, but two things. Their SPAC is merging with Sky Harbor that's still pending. That's something to watch in the fourth-quarter. They are investing. That's going to be their biggest investment to date when that goes through. Their most interesting tidbit I was able to find in their 10Q, they've acquired some land in Nevada. They didn't say how much, they didn't say where exactly. They plan to the start a fourth business, a built to rent home business. Where they build town homes or single-family homes for the specific purpose of owning them on their balance sheet and renting them out, kind of like a real estate investment. They just mentioned that like as a footnote in their 10Q in typical Boston Omaha style. I'm excited about that part of the business.

Jason Moser: They make you work for it.

Matt Frankel: They do.

Jason Moser: That's really interesting. Given the housing shortage, right? I mean, I think we can all agree that's an issue right now. We have a housing shortage, we get a lot of catching up to do. It really does feel like that's a riskier bet, so to speak. It feels like that's something with a lot of potential.

Matt Frankel: Yeah, it's interesting just because the housing markets kind of going crazy lately, but the rental market, everyone always talks about it on the home affordability side. But the rental market is also kind of going through the roof, especially in some of these Sunbelt markets like the OEM. Rent is going. There's just a big shortage of rental properties. They have a great relationship with our home builder. I mentioned Dream Finders Homes is their biggest investment they are a big stakeholder in there. They have good relationships there. They have the financial backing to do it. It'll be interesting to see if they can successfully build some homes for the purpose of renting and actually earn a nice return on them?

Jason Moser: Yeah. I would imagine Tom, given that the business is primarily focused on billboards today. I believe the longer-term goal is to make you want that reliance to just continue to come down. I assume over time it's to be a much more diversified business covering a number of different areas and that billboard revenue, while maybe it could continue to grow, it becomes less and less a pivotal part of the business.

Matt Frankel: Berkshire has over 60 businesses right now and at one point it was essentially an insurance company.

Jason Moser: Yeah.

Matt Frankel: The plan was to incrementally add businesses overtime wherever Warren Buffett saw the best opportunities. That's kind of what they're doing now. It's kind of like a strike while the iron is hot type thing. I feel like with the build-to-rent thing that they're doing and with the broadband, which is where they're spending most of their growth capital these days. It's kind of like they go where there's needs to be met and it seems like it's paying off so far.

Jason Moser: Well, speaking of paying off Matt, that's a nice segue into our final company for the Marqeta company. We haven't really talked about a whole lot on this show today because it's still so new to the public market. Recent IPO, but another really interesting business. They are in card issuing and processing and really focused on being the modern issuer. Ultimately helping customers like Square, Affirm, DoorDash, Instacart, create customized payment card programs for their businesses. This is a business. I own shares of Marqeta myself, but it's one that I think really plays into that whole idea of expanding digital payments. It does feel like there's a lot of potential here, but they certainly need to prove themselves. In this past quarter, it looked to me like they took another step in that direction.

Matt Frankel: Did you see who their newest big customer was in the last quarter? It's one of your favorites also.

Jason Moser: I did. Another favorite of ours here on the show Bill.com. We saw that headline and I got to admit, I got a little bit excited there.

Matt Frankel: There's a lot of possibilities, I think right now they're just kind of using it to issue debit cards, I think, to some of their customers.

Jason Moser: Yeah.

Matt Frankel: But there's a lot of different adjacent opportunities with Bill.com they can pursue.

Jason Moser: For sure.

Matt Frankel: One thing people need to know, this is a big, high-volume business.

Jason Moser: Yeah.

Matt Frankel: Annualized payment volume surpassed 100 billion in this quarter, $27.6 billion in payment volume on their cards, that's up 60 percent year-over-year. Granted, it's not the best comparison to the third quarter of 2020, when the pandemic still at most things shutdown. But on that they generated a $132 million of revenue, so not a high-margin business. They make, I think it works out to something like 0.5 percent of their transaction volume is revenue.

Jason Moser: Yeah

Matt Frankel: It's kind of what these payment networks do these kind of like take a little bit of revenue off the transaction. They are still losing money. They're not a profitable business. That's important for people to know. On a non-adjusted basis, I guess they did 132 million in revenue. They lost about $46 million. That's a profit margin of something to the effect of negative 30 percent. On the surface, that sounds terrible, but when you're a payment processing and business growing at 60 percent year-over-year and signing up clients like Bill.com, Uber, Square, they expanded their relationship with Uber recently. DoorDash. If you're signing your clients like that, which all have big addressable growth markets, by the way, and their relationship will grow as the companies do. If Square 10Xs its payment volume, its relationship with Marqeta is going to 10X essentially. When you are signing up customers like that and you're still growing your customer base that fast, it's not that much of a concern. One other thing that did stand out to me in Marqeta's report is their international growth. In Europe, their transactions grew 340 percent year-over-year. Their international growth is impressive. They've gotten to where they are so far with mostly domestic growth and are now just getting into the rapid growth phase internationally. That's something to watch too. But you're a shareholder, so I'm curious as to what you think about it.

Jason Moser: Yeah. I feel like it was a good quarter. As you said, as their customers succeed, they succeed. They've a usage-based model that's based on that processing volume, and ultimately, the more that goes through their network, the better their customers do. Primarily, they get the majority of their revenue from those interchange fees. Very familiar model perspective. I feel like this is a business that is helping to accommodate a lot of new ways that we're doing business today. With the advent of the mobile economy and everything that we're doing on our phones, it's not just your physical cards anymore. It's just that Marqeta is able to go physical, virtual, tokenized. They're getting a foot in the crypto door. You mentioned earlier the focus on debit, but now into a focus on credit as well. Big relationship with MasterCard, all very encouraging, and then when you look at the market opportunity and clearly, we talked about it all the time, trillions of dollars moving around the world on these networks, and so getting just a little piece of that can be very meaningful into that point there. They even note that your monitor projects that electronic payments are going represent 46 percent of total global transaction volume by 2025, which is pretty one percent in 2017.

That 46 percent, actually when you think about it, it's like, that seems actually low because who in the world is using all this paper? This cash and this paper. But the fact of the matter is, around the world, it's still very much a normal way of doing business, yet to me, this is a founder-led business with a very passionate founder, I might add in. I think there's a lot of potential there. I think the one real red flag that a lot of investors noted early on was the reliance on Square, the majority of revenue being generated from its relationship with Square, that continues to come down. I'm not so concerned with that regardless because Square is so pervasive. That's actually a good thing. I think the longer that companies rely on the products and services that a company like Marqeta offers, the longer they stick with them. I think it's a sticky business overtime. For me, valuation is always going to look a little bit wankey with some of these new fangled IPOs. But to me, Marqeta seems like it's almost something special.

Matt Frankel: Well said. It's a really interesting company and a very niche player, but with a big niche to fill.

Jason Moser: Yeah. Well, I think we can leave it there. Matt, that'll do it for us this week. Really appreciate you digging in, the support and taking the time to jump on with us.

Matt Frankel: Sure thing. I think this was the tail end of earnings season. Think of something non earnings to talk about for next week.

Jason Moser: I was thinking maybe what we could do because I was looking back. When you mentioned bill.com, I had to look back at when we actually published that episode of the two stocks that we were going to buy. Remember I bought bill.com and you went with Lemonade. We should revisit those. It will revisit those two companies and give our listeners an update on how the businesses are doing. maybe we'll do that next week.

Matt Frankel: I like that. Lemonade got a lot going on.

Jason Moser: All right, sounds good. Remember, folks, you can always reach out to us on Twitter @MFIndustryFocus, or you can drop us an email at [email protected]. As always, people on the program may have interest in the stocks [...] recommendations for or against. So don't buy yourselves stocks based solely on what you hear. Thanks as always to Tim Sparks for putting the show together for us. For Matt Frankel, I'm Jason Moser. Thanks for listening, and we'll see you next week.