A long-term mindset is one of the most important qualities that an investor can possess. In most cases, life-changing wealth does not accumulate overnight. Instead, it takes a while for the composition to work its magic, but that doesn’t mean the process is complicated. All you need is patience and a diversified portfolio of high quality stocks.
SoFi Technologies (NASDAQ: SOFI) and Holdings reached (NASDAQ: UPST) participate in the unstoppable fintech industry, and both stocks have the potential to increase their value tenfold over the next decade. Here’s what you need to know.
1. SoFi Technologies
SoFi is a mobile-focused fintech company. Its platform includes lending products such as student loans and mortgages as well as financial services such as fund management accounts (SoFi Money), brokerage services (SoFi Invest), credit cards ( SoFi Credit Card) and access to third party insurance products (SoFi Protect).
In 2020, SoFi also acquired Galileo, a technology platform that enables financial companies to provide digital banking services. For example, Galileo makes it possible to issue physical or digital debit cards, create deposit accounts and process payments. Several well-known fintechs rely on Galileo, including Chime, MoneyLion and Robinhood Markets (NASDAQ: HOOD).
The breadth and simplicity of SoFi’s platform gives it an edge over many other competitors, which has helped the company grow rapidly. In fact, SoFi’s membership base has accelerated for eight consecutive quarters, and the number of products used by these members has grown even faster. Collectively, this formidable engagement generated revenues of $ 231 million, up 101%.
Going forward, SoFi values ââits market opportunity at $ 2 trillion, which means it has plenty of room to grow its business. To this end, in March 2021, the company applied to become a banking holding company and entered into an agreement to acquire Golden Pacific Bank. Once SoFi has a national banking charter, the resulting synergies should boost its business.
The company currently relies on banking partners to provide money management services to SoFi Money account holders. But with a banking charter, SoFi could provide these services directly. In turn, this would allow it to fund loans with customer deposits, which means lower interest rates for borrowers and higher interest rates for SoFi Money account holders. This would not only create value for members, but it would improve the unit economy for SoFi. That’s why that stock (with a market cap of $ 18 billion) could increase tenfold over the next decade, becoming a $ 180 billion company.
2. Successful holdings
Upstart is a fintech company disrupting the consumer lending industry. Traditionally, banks have used credit models that incorporate (at most) 30 variables to determine who is eligible for funding and at what interest rate. However, Upstart believes these models deny many creditworthy borrowers, and many approved people are overcharged. Case in point: 80% of Americans have never defaulted on a loan, but only 48% have access to prime credit.
To this end, Upstart is leveraging artificial intelligence to make consumer finance more inclusive and efficient. Its platform collects over 1,600 data points per claimant and measures these variables against 10.5 million reimbursement events. This allows Upstart to quantify the risk more precisely than the alternative methods. In fact, the company estimates that its AI models are four to eight times more effective than traditional lending models.
Who does it benefit from? Everybody. Consumers benefit from higher approval rates and lower interest rates, while Upstart’s banking partners benefit from higher approval rates (more business) and lower loss rates. And the network effect created by Upstart’s AI models is expected to reinforce these benefits over time. In other words, as its platform is used to generate more loans, Upstart will collect more data, making its predictive engine smarter.
Not surprisingly, Upstart is growing at a phenomenal rate. During the second quarter, banking partners issued $ 2.8 billion in loans using its technology, up 1,605% from the previous year. This skyrocketed revenue 1.018% to $ 194 million, and the company reported generally accepted accounting principles (GAAP) profit of $ 37 million.
Shareholders have many reasons to be excited about this company. Upstart recently entered the auto loan business, increasing its market opportunity to $ 719 billion, but the company plans to pursue other markets in the future, including credit cards, student loans and mortgages. . That would bring its total addressable market (TAM) to $ 4.2 trillion. To put that into perspective, Upstart has facilitated just $ 4.5 billion in loans through the first half of 2021 (or $ 9 billion on an annualized basis), which is 1.2% of its current APR and 0.2% of its potential TAM.
That’s why I think that $ 26 billion fintech stock can increase tenfold over the next 10 years.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.