Comparing Fintech Stalwarts: PayPal's Edge over SoFi Technologies
The digital finance sector experienced significant challenges post-pandemic, with the stock market bearing the brunt of it, particularly the fintech industry. However, there are still lucrative prospects. One such example is PayPal (PYPL -1.45%), whose share price has remarkably dropped by about 70% from its 2021 peak. Despite this, the company has made significant strides in 2024, with impressive turnaround progress.
On the other hand, there's SoFi (SOFI -3.74%), an app-based bank that has demonstrated exponential growth. SoFi, which went public through a SPAC, has been able to maintain momentum and achieve profitability, a rare feat amidst the SPAC boom.
Both companies present compelling investment cases. Let's delve into the bullish arguments for both, considering vital factors to consider before making your choice.
PayPal reorganizes and rebounds
Confronted with stagnant growth and a lack of a clear path to restore momentum following the pandemic, PayPal took decisive action. The company made significant executive changes, leading to the appointment of Intuit (INTU) executive, Alex Chriss, as the new CEO, along with a comprehensive revamp of the entire senior leadership team.
Their initial focus was on enhancing efficiency. In the recent quarter, PayPal's revenue grew just 6% year-over-year, but thanks to improved efficiency, earnings per share (EPS) skyrocketed by 22%. PayPal continues to actively purchase shares, and recently, engagement has significantly improved, with a 9% increase in transactions per active account.
However, the most exciting developments for PayPal are yet to reflect in the numerical data. For instance, PayPal announced the creation of an advertising platform and hired the former head of Uber's (NYSE: UBER) ad business to head it. It also launched its Fastlane checkout product and PayPal Everywhere, a cash-back, debit card initiative. Furthermore, the company has secured several strategic partnerships, notably with Shopify (NYSE: SHOP) to offer PayPal as a checkout option for U.S. customers.
In brief, PayPal's efficiency measures have proven successful. By 2025, growth initiatives are expected to yield significant results.
SoFi soars as a SPAC success story
The 2020-2021 period saw numerous companies going public through SPACs (special purpose acquisition companies). While many investments didn't fare well, SoFi is a standout exception.
SoFi, which utilized one of Chamath Palihapitiya's SPACs to go public, is one of the rare success stories. Not only has the company managed to maintain robust growth momentum, but it has also achieved profitability.
Over the past three years, SoFi's member base has tripled, boasting a 35% year-over-year growth in the most recent quarter. In this period, around 8.5 million financial services products like bank accounts, investment accounts, and credit cards have been opened. Additionally, SoFi's deposit base--previously zero when it secured its banking charter in early 2022--now stands at $24.4 billion in customer deposits.
As mentioned, SoFi has consistently turned a profit, and this could significantly increase in the near future, as the business continues to expand.
Two promising fintech investments
To clarify, neither of these stocks should be avoided. In fact, they represent the two largest fintech investments in my portfolio. PayPal is noted for its profitability, but for sustainable growth to return, certain factors need to fall into place. On the other hand, SoFi is growing at an impressive pace and has only recently attained profitability, ensuring it remains in expansion mode. The choice between the two depends on which profile best aligns with your investment style.
In light of the challenges faced by the digital finance sector, both PayPal and SoFi have demonstrated resilience and potential for growth. PayPal, despite a significant drop in share price, has made executive changes, improved efficiency, and launched new initiatives like an advertising platform and cash-back debit card initiative, indicating promising growth prospects by 2025. On the other hand, SoFi, a SPAC success story, has tripled its member base, achieved profitability, and expanded its deposit base, ensuring continued growth while remaining in expansion mode. These two fintech companies present intriguing investment opportunities, and the choice between them largely depends on one's preference for profitability or growth. [money, finance, investing, PayPal, SoFi, digital finance sector, growth, profitability]
Given the recovering growth and improved earnings of PayPal, and the impressive growth and profitability of SoFi, it's an exciting time for investors interested in the fintech sector. Whether seeking robust growth potential or reliable profitability, PayPal and SoFi provide compelling investment cases, highlighting the significance of strategic leadership, efficiency measures, and innovative products in the finance industry. [money, finance, investing, PayPal, SoFi, growth, profitability, strategic leadership, efficiency measures, innovative products]
