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Inside SoFi's Lates Acquisition (Yes, Another One)

SoFi (NASDAQ: SOFI) has been in acquisition mode over the past year and recently made an intriguing deal. In this segment of "The Future of Fintech" on Motley Fool Live, recorded on Feb. 24, contributors Jason Hall and Matt Frankel discuss the fintech company's move to get Technisys, a digital banking platform.

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Jason Hall: This is the one that we wanted to talk about. I think it's so interesting and announced an agreement to acquire Technisys. That doesn't mean much to a lot of folks out there. I actually had to spend some time doing some research into Technisys and this is their website.

Technisys is a digital platform for banks, right, Matt? It's like they've made a shift from having to rely on other banks to now they're looks like they're positioning themselves to be able to do the same thing for other banks, Matt?

Matt Frankel: Yeah, it reminds me of a company called Green Dot (NYSE: GDOT) that I follow that they have a banking as-a-service platform they call it. They provide the infrastructure. I'm not that familiar with Technisys like what their customers are because they're not public in the U.S.

But Green Dot, they power things like Uber's (NYSE: UBER) instant payments to drivers, that's a Green Dot product. Apple (NASDAQ: AAPL) Pay Cash is powered by Green Dot. Intuit's (NASDAQ: INTU) a lot of their banking infrastructure is powered by Green Dot for TurboTax.

A lot of third-party things that these companies do because companies like Apple and Uber and Intuit it's to their benefit to offer banking products to their customers. It's not beneficial for them to become a bank. That's where these third-party companies come in. It sounds like that's what SoFi wants to do with this acquisition. If I'm understanding it correctly.

Hall: Yeah, I agree with you. I think it's just an incredible pivot how quickly SoFi is moving this. With that said Matt, I want to say I do have a little bit of concern that SoFi is starting to get involved in a lot of different things. I know there were actually a few of the real money portfolios that the Fool operates that sold SoFi a few months ago because of concerns about the fact that it's becoming a lot less of a pure-play on one or two things that it wants to do really well and is trying to do everything.

I see SoFi now doing this, you mentioned Green Dot, but there's also Central Pacific Bank (NYSE: CPF), which is one of the three or four primary banks in Hawaii that also is building a bank as a service business. It seems like this market is starting to get really crowded. My concern is SoFi spreading its resources out a little bit too much at this phase of its growth and now it's going to be a jack of all trades and master of none.

Frankel: Yeah. I have those same concerns too especially because they are spending a lot on this acquisition, it's over a billion dollars in an all-stock deal. It dilutes current shareholders, which I'd rather them spend a billion dollars in stock at this point than a billion dollars of cash.

Hall: This is not like Lemonade (NYSE: LMND) with that secondary, a stock price that was an order of magnitude higher than it is today.

Frankel: Sure

Hall: This is the worst time to be using your stock as capital.

Frankel: Well, yeah. Their vision that they laid out in that presentation is good. There was the one line you pointed out to me that really tell us where SoFi wants to take this. They want to be the AWS, the Amazon (NASDAQ: AMZN) Web Services of fintech, which is not what they were when they went public last year. That wasn't part of the vision. Now you know being a bank was part of the vision at the time they went public. Right now, it is worth pointing out SoFi's overall pursuit is to build the AWS fintech and made that no uncertain terms.

Hall: AWS, that's Amazon Web Services. Bold.

Frankel: This is expected to add, as they say, $500-$800 million of revenue through 2025. On a long-term basis, they are expecting up to $70 million of annualized cost savings from synergies with our existing business. It's worth pointing out that SoFi, for the first time in its history, is trading for below the valuation that insiders paid in SPAC deals under a $10 share price.

You can get into the low that SPAC valuation right now, despite having become a bank since it went public by SPAC, despite acquiring now Technisys, despite getting approval for its banking charter, which was a big hurdle to overcome and despite roughly tripling its user base or it's account-based year-over-year in the most recent quarters.

I think SoFi reports early next week. It will be really interesting to see the progress they continue to make if they are continuing to add customers at this level. But right now this looks like a really interesting one to me.

Hall: Yeah, I think so. I'm still a buyer even with those concerns, I'm paying more attention. This is one Matt that you played a role in helping me be a little bit more of a believer in what they're trying to do. As much as we've seen more of a pure-play of payment platforms and that thing that have done really well. I think if you really want to be a financial services provider like they're trying to do becoming more full-services, I think it does make sense.

Every time they bolt on something new, that's not something they have already been doing. It spreads out the resources you have a little bit more. I think investors should just be very conscious of that. But at this price, I think the risk adjusted reward potential looks really good to me. It really does.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Hall owns Central Pacific Financial, Lemonade, Inc., and SoFi Technologies, Inc. Matthew Frankel, CFP® owns Lemonade, Inc. and SoFi Technologies, Inc. The Motley Fool owns and recommends Amazon, Apple, Central Pacific Financial, and Lemonade, Inc. The Motley Fool recommends Green Dot Corporation, Intuit, and Uber Technologies and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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