THE WATCHLIST

Welcome back to The Watchlist Investor Report.  If you’re here, it’s because you believe in building real wealth through long-term compounding. HappyStocks are businesses that grow year after year, with the ability to deliver 20–40% annualized returns over a decade and the potential to 10x plus your overall investment.  

In this WATCHLIST newsletter, you’ll get my analysis on the best of the best – some stocks I own and those I’m watching closely 👀.  You’ll also get my macro updates and investing wisdom once a month to keep you focused on the long game. Enjoy!

Let’s dive into SoFi…

Who is SoFi and What Do They Do?

SoFi is a digital-first bank and fintech platform positioning itself as a one-stop shop for personal finance. Members can borrow, save, spend, invest, and protect money all within one app.

The company operates across three segments:

• Lending: Student loan refinancing, personal loans, and mortgages.

• Financial Services: Banking (checking, savings, credit cards), investing, and insurance.

• Technology Platform: Galileo (payments APIs) and Technisys (core banking software) providing infrastructure to other fintech’s and banks.

💰️ How SoFi Makes Money?

• Lending (50%+ of revenue): Interest income from loans and gains from selling or securitizing them

• Financial Services (30%): Interchange fees, investing referral/payment flow, and net interest margin on deposits

• B2B Tech Platforms (15%):  Fees from Galileo (transactions, account management) and Technisys (banking software licensing)

This diversified model balances interest income with recurring fee revenue, making SoFi less dependent on any single stream.

👉️ When I see a company with multiple revenue streams, I think about resilience and growth. If one engine stalls (i.e. student loans during the govt moratorium), the others can keep the ship sailing. This has also been limiting their concentration risk.

Durable Moat 

1. Bank Charter: Since 2022, SoFi can fund loans with low-cost deposits ($29B as of mid-2025). This improves loan margins and pricing flexibility compared to non-bank fintech’s.

2. Owned Tech Stack: Galileo + Technisys give SoFi unique vertical integration. They control both the frontend products and the backend infrastructure, rare in fintech.

3. All-in-One Ecosystem + High-Quality Members: Cross-selling keeps acquisition costs low, while a prime borrower base means lower defaults.

Together, this combination of banking charter, technology ownership, and product creates a competitive moat that’s hard for rivals to duplicate.

👉️ A moat is valuable if it shows up in the numbers; increasing margins, better retention, faster growth, etc.  When I analyze a company, I always check whether their “story” matches their results. So far, SoFi’s deposits and cross-sell metrics back this up

Core Analysis

Market Position: A leader in student loan refinancing ($46B+ refinanced) and a top U.S. fintech in overall members (11.7M). Galileo also powers 150M+ accounts across other fintech’s.

TAM (Total Addressable Market): Ginormous.  Lending + deposits + investing = multi-trillion dollar markets. Global fintech infrastructure = projected $1.5T by 2030.

Revenue Growth: YOY revenue growth has been consistently strong the last three years:

2022 > 2023 = 36%
2023 > 2024 = 28%
2024 > 2025 Current TTM = 29% 

Cash Flow: SoFi is not FCF positive yet and shows negative GAAP operating cash flow, but the underlying business is generating cash and hasn’t needed to raise additional cash for operations since Q3 of 2022. The “burn” you see is more about strategic growth choices (holding loans longer for interest income) than unprofitable operations. As a bank, when SoFi originates and holds loans, it shows up as a big cash outflow which makes FCF look negative. But those loans generate interest income over time, and SoFi funds them with deposits (cheaper capital), which adds long-term value. If SoFi sold more loans off their balance sheet instead of holding them, reported FCF would look positive.

👉️ Negative free cash flow can be scary.  With banks and fintech’s, you have to look deeper. Sometimes “negative” is them choosing to hold assets for long-term yield. The key is whether they can fund it with deposits and not new debt. So far SoFi looks to be doing that.

EPS Growth: SoFi has been profitable for 7 consecutive quarters, proving a scalable and sustainable model.

2024 = eps .46
TTM 2025 = eps .53

Pricing Power: Don’t think traditional pricing power here.  SoFi is hoping to win customers with low rates, high APY deposits, and no fees, not by charging premiums. As members use more products, ecosystem stickiness could give them leverage over time.

Margins: Overall gross margins look good and have stabilized around 71%.  Lending margins are solid.  Financial services contribution margins have spiked to 52%. Overall adjusted EBITDA margin nearly 30% as of Q2 2025.  

Debt & Cash: $3.5B long-term debt with about $4.5B in cash. Plus $29B in customer deposits funding growth. The long-term debt/equity ratio is around 0.6 and the company’s cash exceeds its debt, which is a relatively strong position.

Institutional Ownership: 50-55% of shares are held by institutions like Vanguard and BlackRock (growing steadily).

Why it Looks Good 📈📈📈

• High growth across all segments

• Unique moat: bank charter + tech platform + full ecosystem

• Massive TAM with a long runway

• Transitioned to profitability, a rare feat for fintech’s

• Growing deposits lower funding costs and boost margins

• Institutional investors are increasing

Why it Can Be Concerning 📉📉📉

• Heavy competition in every segment (banks, fintech’s, neobanks)

• Limited pricing power – relies on competing with better deals.

• Economic cycles hit lending hard (higher defaults, lower demand)

• Valuation can swing with market sentiment on growth stocks

• Personal loans concentration risk, although improving with new revenue streams

5 to 10 Year Outlook

The next decade will decide if SoFi can turn fast growth into dominance.  The big question for SoFi will be its ability to capture a massive TAM while scaling profits. If it can keep growing deposits, increase member relationships through cross-selling, and pick up more enterprise clients on Galileo and Technisys, then the moat only gets stronger..

SoFi already leads in niches like student lending, but its real test is whether it can evolve into a dominant digital bank and fintech infrastructure provider. The next 5 years will be about proving it can balance rapid growth with durable profitability. The following 5 years will determine if it can turn that scale into lasting dominance.

With its competitive advantages, improving financials, and long runway, SoFi has the potential to become one of the rare fintechs that compound value for investors well beyond the next market cycle.

Summary

SoFi is one of the few fintech’s that looks like it can scale into something big. They’ve built a full ecosystem that includes lending, banking, investing, and control the tech that powers other fintech’s, ultimately giving them multiple ways to make money and have a real competitive advantage.

They’re going after a huge market with a one-stop model that’s driving strong member growth. They’ve gone from a cash-burning startup to consistent profitability, mulitple revenue streams, and solid margins.

Instead of trying to squeeze customers with higher fees, SoFi is offering better value, and it seems to be paying off in market share. With scale, profitability, and a unique moat, SoFi is one of the few fintech’s positioned to become a long-term compounding winner.