SoFi Technologies, Inc. (SOFI), a leading fintech firm, announced last week its newly established access to private capital markets with funds from Cashmere, Fundrise, and Liberty Street Advisors—a move I see as a potential game-changer.
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Private market operations offer a high-margin revenue opportunity that could ease concerns about the sustainability of SoFi’s net income growth. This strategic step also reinforces SoFi’s broader vision of becoming a comprehensive financial services platform for U.S. consumers. I remain Bullish on SoFi, as I believe it is well-positioned for significant growth over the next five years.
SoFi Expands Its Horizons
SoFi’s expansion into private market investments supports my long-term investment thesis for the company, as this strategic decision creates a clear pathway for SoFi to enjoy long-lasting competitive advantages. The company is partnering with leading asset management firms, including Cashmere, Fundrise, and Liberty Street Advisors, to offer retail investors a cost-effective way to invest in private markets. According to the official announcement, investors will be able to access private market funds with a minimum investment of just $10, thereby removing long-standing barriers to entry in private markets.
The private market move comes as part of a long-term strategic initiative to diversify beyond its core banking product portfolio. Over the past 12 months, SoFi has successfully executed the first leg of this expansion by offering retail investors access to unique alternative investment vehicles in partnership with ARK Funds, KKR & Co. (KKR), and Franklin Templeton (BEN). These expansion efforts are necessary to achieve SoFi’s long-term objective of becoming a top-tier digital financial services powerhouse.
SoFi to Unlock Value From Existing Members
A closer evaluation of SoFi’s member acquisition model has boosted my confidence in the company’s long-term earnings growth potential. As of Q1, the company served 10.9 million members. Interestingly, SoFi’s original focus was on student loan refinancing, so it is safe to assume that a large cohort of these members consists of well-educated, high-earning professionals.
Based on this assumption, it is likely that a significant proportion of these members are seeking to diversify their portfolios into private markets to gain exposure to highly sought-after companies such as OpenAI, SpaceX, and Canva.
SoFi’s expansion into private markets offers a seamless option for its millions of members to easily access private market investments through a platform they are already familiar with. Since the company already has access to a large pool of qualified investors, customer acquisition costs for private market funds are likely to remain minimal in the foreseeable future, which bodes well for SoFi’s margin expansion efforts.
SoFi is well-positioned to unlock significant value from this built-in distribution channel by introducing innovative products. Clearly, the introduction of private market funds is a key component of this strategy. For context, in Q1 alone, the company added 1.2 million new products, highlighting the strength of its innovation pipeline.
Fee-Based Income Set to Boost SoFi’s Long-Term Profitability
My bullish outlook on SoFi is further supported by its potential to generate stronger fee-based income following its expansion into private markets. Currently, the company’s revenue and earnings are heavily tied to interest rate trends. While capital markets will always be influenced by rate fluctuations, diversifying into asset management and building out fee-based offerings could help stabilize earnings over time and reduce reliance on interest-sensitive income.
Consider this: if just 5% of SoFi’s 10.9 million members choose to invest in the new private market funds, and each contributes a modest $1,000, that would result in $545 million in new assets under management. Even with conservative assumptions, SoFi is well-positioned to significantly grow its AUM in the coming years, driving meaningful increases in high-margin fee income.
SoFi is Tapping a Large Market Opportunity
As discussed earlier, offering private market investment opportunities seems like a natural fit for SoFi, which is one of the main reasons why I am bullish on this decision. Additionally, I am encouraged by the massive market opportunity that SoFi is tapping into. According to Deloitte, the global private market managed $13 trillion in assets as of mid-2024. Interestingly, assets are expected to balloon to more than $21 trillion by 2030, representing a staggering $8 trillion increase in just over five years.
Recently, private equity giant Blackstone (BX) highlighted that retail investors represent the next frontier of growth for private markets, which makes SoFi’s strategic expansion into this market a timely one. Offering fractional access to privately held companies is likely to help SoFi gain traction amid the call for further democratization of finance.
Is SoFi a Good Stock to Buy Now?
Although SoFi has made stellar progress recently in diversifying its revenue streams by expanding into new markets, many analysts are concerned about the company’s valuation after a 190% run-up in the stock price in the past 12 months.
Based on the ratings of 17 Wall Street analysts, SOFI’s average stock price target is $15.79, which implies a downside potential of ~25% from the current market price.
Over at Goldman Sachs (GS), yesterday, the bank initiated coverage of SoFi Technologies with a price target of $19, commenting that the neobank’s growth story is impressive but at a P/B multiple of 5x and a P/E ratio of almost 50, investors need to be “cautious of a market correction.”
KBW, on the other hand, maintained its Sell rating on SoFi, citing “overvaluation despite growth prospects,” regardless of the news about its newly acquired capital sources. While acknowledging the valuation concerns raised by analysts, I believe SoFi’s above-average growth and industry-leading net interest margins will support robust earnings growth in the next five years, leading to even higher stock prices.
SoFi’s Private Markets Push Strengthens Growth Outlook
SoFi Technologies is expanding its product offerings by providing retail investors with access to private market investments—a strategic move that aligns well with its long-term growth objectives. This expansion opens the door to a high-margin revenue stream, which could meaningfully enhance overall profitability. The timing is also favorable, with global private market AUM expected to see strong growth in the coming years. Given SoFi’s robust growth outlook, I believe its premium valuation is justified, and I remain bullish on the company’s future prospects.