Fintech stocks have been hit hard in 2021, with many stocks like PayPal (PYPL -5.21%) and Robinhood (HOOD -1.79%) falling over 35% off their all-time highs. Even established companies like Block (SQ -4.85%) have fallen 38% off their highs.
Popular fintech and lending platform SoFi Technologies (SOFI -2.75%) has been no exception, falling 41% off its all-time high and now trading at an all-time low valuation of just 12 times sales. This poor stock performance is not indicative of SoFi's business performance, however. The company has been seeing lots of growth while making strides to better its business. These impressive moves to stabilize its business make it a very appealing stock. Here's why I think SoFi could win big in 2022.
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Growing financial services
SoFi started primarily as a lending platform for consumers to obtain personal and student loans, but it has since become an all-in-one app for consumers to manage every aspect of their financial lives. SoFi now offers investing services, debit and credit cards, and even insurance.
All of these products are attracting plenty of customers. SoFi's third quarter had the biggest sequential increase in the company's history in members, and the platform now has 2.9 million members using at least one service. What is even more impressive is that until Q3, SoFi's year-over-year growth in member count has been accelerating, meaning that SoFi's popularity and word-of-mouth advertising have been growing. In Q3, the company's member count grew 96% year over year, which is a decrease from 113% year-over-year growth in the second quarter, but it's still astounding.
What really excites me is that SoFi is clearly focusing on its financial services. SoFi's customers have over 3.2 million financial services products, much higher than the 1 million lending products customers have. For example, if one consumer were to use both SoFi Invest and SoFi Money, that would count toward two products. Even more impressive is that the financial services product growth is 179% year over year, while lending product growth is just 15% year over year.
This is important because financial services are much more robust than lending services. With loans, the company faces substantially more credit risk and default risk than it does by simply offering a platform where consumers can invest. The same thing goes with Galileo, which is why I am excited that its financial services business and Galileo are growing much faster than its lending services.
Galileo is a business-to-business offering that provides the infrastructure for things like direct deposit, mobile payments, and account transfers. Galileo is used by large investing platforms like Robinhood and Chime, along with over 89 million other businesses. It has seen rapid adoption, growing its number of accounts 80% year over year in Q3. Growth in this segment, along with its financial services segment, tells me that SoFi's business is becoming more stable -- something I love to see.
Expanding relationships
In addition to rapidly attracting customers in its financial services and business-to-business segments, the company is also bringing its existing customers deeper into the product ecosystem. This can be seen in the dichotomy between the number of new customers and products on the platform. Its Q3 customer count increased 96% year over year while total products increased 108% per year, meaning that its customers were adopting more than one product. In fact, with 4.3 million products, the average SoFi customer uses 1.45 products. This has been steadily improving since the beginning of 2019 when the average customer was using just 1.1 products.
Because of this additional adoption of products and the company's ability to quickly build its brand name, SoFi's net loss is decreasing. The company posted a Q3 net loss of $30 million, which isn't pretty but is decreasing year over year from $43 million. As the company's brand continues to spread through word-of-mouth brought on by more customers, this could improve even more.
The risks to a highflier
Risks still remain with this business, one being its vulnerability to the loan market. The company still makes the majority of revenue off its loans, which can be a risky business. Preferably, I would like to see them continue increasing the adoption of Galileo and its sturdier services. This can provide stability to SoFi's financials.
If the company can continue to do this through 2022, I think SoFi could flourish. It is seeing tremendous growth, and everything financial is moving in the right direction for this company. Now that it's trading at rock-bottom multiples and its word-of-mouth is resonating, I think SoFi has the potential to be a major winner not only in 2022 but for the next five years.
