Okay folks, so in this back and forth market, we need to talk about the five to so. So far I had a very very good week at least in terms of the fundamentals because they got their bank charter. However, with equity chopping lumberjacks running a mock through the market, seems like the market doesn't want to really stick much. and hey, look, it was nice to see Sofi reverse course a bit.

But let's be real, the market does not like Sofi or companies like Sofi right now regardless of what they can provide. So if I could end world hunger and they would go up maybe 10 20 for a couple days and then the next inflation scare would get it down another 40 percent. And in this video I want to discuss with you why despite the market not liking Sofi, you should still consider liking it. I'm going to go through each of the bear arguments in my rebuttal.

I don't ask that you blindly trust what I have to say, but what I do ask if you want to watch the video is that you hear out the argument and then you think for yourself. If you have a completely different conclusion, that's totally fine. In fact, I even encourage you to comment that and explain why you have a different opinion. I do read through a lot of the comments, but I do think a lot of these companies that people loved at much higher valuations and were the best stocks ever that could do no wrong.

Well, when they're now trading at very, very low prices despite having increasing fundamental value, I think it's very, very important to talk about them so fi hopelessly overvalued. Somebody help it, there's no hope it's just too overvalued. Fair value of seven? It's hopeless. Why is this so hopelessly overvalued? Both member and revenue growth have begun to slow.

Slower growth in coming quarters must be anticipated. The National Bank Charter changes Nothing. Who cares that this bank charter changes everything. I'm going to write something real edgy and say it changes.

Nothing. Worth a lot less than 10 dollars a share? Not competitive in the products they have, and the products that they do have aren't very profitable. Stay with other financials. there are so many of them that are at low valuations, distribute cash flows to shareholders, buyback shares, and are very profitable and well capitalized.

None of that. None of what I just said applies to Sofi. This person says pretty soon growth stock critics are going to be arguing that these companies are only worth the value of the toilets and plumbing system in their headquarters. The only value of a growth company is the value of the toilet.

Okay, any multiple on the value of the toilet is ridiculous and is a lie. So bear argument. number one is that Sofa is not competitive in the products that they have. But what does being competitive mean? It means having a product that stands out enough that customers choose your product over the competition.

You're competing with other companies for what customers. So if you can get customers consistently, you are by definition competitive. If you can get customers at a higher rate, you're more competitive than the competition. If you look at the results, the lost four quarters of membership growth reported are within spitting distance of a hundred percent year-over-year growth or well above it despite the fact that the base case scenario that they're comparing to was 2020, where you had massive numbers of growth back then as well.

In terms of products utilized, Supply has five consecutive quarters of above 100 growth as well on a year-over-year basis. In terms of their Galileo platform, which services fintech companies like, say, Robin Hood Robbing the Hood, the last seven quarters were at a 75 growth rate or a buff. In terms of financial Service products, which is the biggest growth sector in Sulphide, you're seeing 179 year-over-year growth. So the question I guess for bears here is, if So Fi isn't competitive, How are they getting so many damn customers? And how are they selling so many products if their products aren't competitive? If there's nothing competitive about them, how are you getting these triple digit increases on a percentage basis, Why are you seeing substantial growth across so many different segments in terms of broad improvements? From a competitive standpoint, it's only going to get better for Sofi because they just got this bank charter, so if I will be able to offer even more competitive interest rates and provide members with better financial services and products all around.

Next argument from bears: Sulfite is a stay-at-home pandemic Pump Stock. It will flop. Now that the pandemic is easing out, business will slow down. So at first you have the narrative being.

Well, the zooms and the teledocs of the stock market are all going to go down to nothing. They're going to go back down as if the pandemic never happened. Make sure to completely erase from your mind all of the acceleration that they had in growth during the pandemic because that was just because of the pandemic. But now the label of a stay-at-home stock has been spread out to literally every tech and software company.

It's all just a stay-at-home pump company. After the pandemic, people aren't going to be going on the internet anymore. they're not going to be needing software anymore. They're not going to be doing any of these things.

All the revenue and growth and success they had in terms of adoption. All of that needs to be completely discounted because none of that is staying post pandemic. But keep in mind that So Fi and many other tech companies, to be honest, were already on a very strong uptrend before the pandemic. It just accelerated the uptrend.

In terms of So Five themselves. They benefited from trends of increased fintech usage and shifting consumer appetite from traditional banks and trading platforms to more innovative ones, but a lot of these trends were already underway anyways. On the other hand, pandemic measures of freezing loans really really screwed with their lending segment. The benchmark of Sofi's history, and their traditional business, is lending and student loans.

Specifically, student loan repayment, freezes and interest rate freezes throughout the pandemic have been terrible for Sophie and it disincentivized people to refinance. Why refinance if you don't have to pay on it anyways? It's also true that a lot of people pushed off schooling, which meant less student loans. Net personal loan demand also dried up as people were scared to take on debt during the start of the pandemic. Sulphide did still manage to grow the lending segment, but that was a massive, massive, deprecating factor, and it's still going on to a large extent.

I do think that you're going to have the inverse in this next year where Fintech is probably going to slow down some and you're going to see lending pick up a lot, but overall, I mean it's a little bit more mixed than analysts want you to think. They are. argument number three. The business model is terrible.

They are a jack of all trades master of none. During the bull cycle you saw all these analysts saying hey, this is so great So far is excellent because their hands are in everything. Loans, insurance, savings accounts, checking accounts, credit cards, investment accounts and even bought Galileo which services Fintechs and is a big business for so fine. They've got so much diversification.

this is fantastic. And now the same analyst. What are they saying? Hey, so far they're spreading themselves way too thin. They're a Master of none.

They're just a jack of all traits. They're gonna be outcompeted everywhere. One man's diversification is another man's dumpster. fire I guess.

But what people don't get is that the wide-ranging strategy of Sofi is intentional. The goal first is to attract as many members as possible and then sell them on as many products as possible. It's driven by members first, and then they sell the product. So the more products they have, the more things that they could sell to their members.

They may get new members with their savings account rates or their lending rates or whatever. but if they want to better monetize their members, they have to be able to introduce more products. So again, Master of None. hey, they're trying to be a master of getting members and then they're trying to sell those members' products.

It's an ecosystem approach and the business model is such that you don't have to have all your products out competing every other product on the market, but you have to have one or two that really shine and bring members in. And when those members were in, you can loop them into a lot of the other products that you don't have to spend as much money on, but they just don't want to go to a whole nother bank or whatever. Let me put it to you this way, this terrible business model scaled so far from 450 million in revenue in 2019 to 600 million in 2020 to now guiding 1 billion for Financial year 2021. and their five-year plan is to hit 3.7 billion by 2025.

Using this membership growth and product expansion tactic as a reminder, I broke down my estimates and I don't think they're going to hit 3.7 billion. I think that's a little bit optimistic. I think it's gonna come in just under three billion if they do actually end up hitting that estimate and I'm wrong. Well, obviously the valuation would deserve to be higher argument Number four I like so far, but the multiple is too high nosebleeds.

Well, Selfie is currently hanging around 11 or 12x multiple based on the day of the week that you look at it. But for a company that I expect to go from 1 billion in sales for 2021 financial year 2021 to under 3 billion just under 3 billion by 2025, it's not too bad of a multiple. I ran the numbers about a week ago on what Sofi would be worth if it did. My revenue projections and the multiple state the same as it was today, and if that was true, you'd be sitting at 36.38 in price by the time.

So, five factored in 2025 sales, but at a fair value of 15x sales, I think you'd be looking at closer to just under 50.. keep in mind that so far itself has gone well well above a 15x multiple during several periods of time last year based on 2021 sales, and the Growth sectors multiples are very, very cyclical. We may not be in a world anymore where you have Visa going and valuing fintech companies like Plaid for 25 to 50x multiples, but business growth does matter, and the rate at which your business grows faster than the average company in the market can justify a substantially higher multiple. Bear argument: Number Five is more of a macro worry, so Fi might be a good company, Charlie, But inflation is going to get out of control and growth companies will all become petty stocks.

This one is a bit more open to interpretation, but this is the reason that growth stocks are getting hammered first and foremost. However, at the same time, the minute that we find inflation starting to normalize out and go to a reasonable level, you're going to start seeing a lot of the gruff sector and tech sector as a whole bounce back in a massive, massive way. And if you're somebody who genuinely believes that we're heading for years of hyperinflation, then the growth sector is definitely not something you want to be in. which, by the way, isn't the majority of the market.

Since the 10-year has barely moved above last year's highs, Some of the other arguments: student loans will always be a liability for the company. Government will keep deferring it. Thus, this is a de facto fail for Sulfi. Again, I understand that this is a massive part of Sofi's business model, and it's a huge deprecating factor.

But eventually the government will decide to unfreeze the student loans. Yes, Biden has extended this to May, and it has been a big blow to a lot of these lending companies, and he could potentially do that again ahead of the midterm elections. But what I see in this category is that eventually they're going to become unfrozen, and the net negative for so far is going to be a net positive. and it's going to be something that bolsters the earnings reports in the subsequent following quarters.

Argument number seven is that interest rates rising will hurt so far by lowering demand for loans. This is the inverse argument that you hear usually for lenders where lenders are going to make more money when interest rates rise. I think that interest rates are going to rise to the extent that a lot of lending companies are going to make more profits, but they're not going to rise to the extent that a lot of consumers aren't going to want to take out debt, and because a lot of personal savings rates have been completely depleted at the end of 2021. You're going to see all these people that need to take out debt in order to keep up their lifestyle.

Last argument: Number eight: The constant achilles heel of the growth sector for value purists. Growth stocks will always be clown companies and they'll never be enough. Why? Why? Because they aren't paying out dividends, they're not shooting out profits to pay to the tax. Man, they're taking all that money and they're reinvesting it into themselves.

Value investing and value buying is totally fine. I have no problem with it. I think that it actually should be a part of everybody's trading style to some extent. But if you're looking for a growth stock, what are you doing? You are buying a company that you believe can grow into a profitable company.

If you're value investing, you're buying a company that is at its mature stage. It's already done most of its growth, and its plan is to grow steadily and slowly on top of what it's already built, which is usually massive and in the process, it doesn't really need to invest in itself because it's already done all it's growing. It's not the next gen company, it's already been the company that's working and so it's just gonna stay there at the top until somebody else beats it. And if you go to the statements, it's very simple how Sofi can turn a profit If they reduce their marketing by a simple 31 million bucks.

You could come out with a nice net gain if they reduce their technology and product development by half, you could also come out with a nice net gain. You could do a combination of both of those. If you want to split that up, just reduce them out. they're investing the company and all of a sudden you could look really good for Wall Street.

So why the hell aren't they doing that? Why are they choosing to have a net loss? That money could be given to shareholders? Charlie Sofia's business model is to invest now heavily in getting as many members as possible and then building as many products to sell to those members as possible. That's the business strategy. So if they decide okay, I'm going to go ahead and cut our marketing expenses and acquisition down dramatically so that we can show a profit. Well, guess what happens All of a sudden their membership numbers start going down in the future looks a lot more bleak.

What about their technology and development? Okay, let's just not invest in making better products than out competing everybody else. What happens, then? Well, you also get less members and you get less retention. The decisions here to invest in marketing and Rnd are the decisions that explain exactly why So Fi is competitive. It's willing to do that.

It's able to do that, and by doing that, it gets these insane growth numbers. The minute you've got these segments, the stock goes up dramatically, but the value of the business goes down dramatically slowly and consistently. But at the end of the day, the value net that Sofi can provide by investing in these two things is so much higher than the value they can provide by shooting that out to shareholders, or by paying the tax man a little extra. So anyways, those are my rebuttals for the Sofi.

Bear arguments. Let me know what you think down below. Anyways, that caps off this video. If you have any questions, feel free to reach out to us below or join us on Ziptrader Circle.

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