Better Buy for 2022: LendingClub vs. SOFI

The fintech industry has been witnessing immense growth amid the increasing digitalization processes caused by the pandemic. This industry is estimated to grow substantially in the next four years due to the high investment in technology-based solutions, enabling the global fintech market to reach $324 billion by 2026 with a CAGR of 23.4%. 

However, the fintech industry is currently experiencing a pullback from its November highs due to the increasing industry regulations and industry-specific challenges, as evidenced by the 17% loss in the Global X FinTech Thematic ETF (FINX) over the past month. 

With this in mind, I am going to analyze and compare two fintech stocks, LendingClub Corporation (LC) and SoFi Technologies, Inc. (SOFI), to determine which one is a better buy for 2022. LC operates a digital lending marketplace that provides borrowers with different types of loans, including unsecured personal loans, super-prime consumer loans, and others. SOFI operates as a fintech company that provides cryptocurrency trading, different types of loans, investments, and insurance services.

Over the past month, shares of LC are down 27%, while SOFI stock has dropped 25% over the same period.

Recent Developments 

On January 19th, SOFI stock soared over 18% during the pre-market trading session after it had obtained bank charter approval. The Office of the Comptroller of the Currency and the Federal Reserve has approved Sofi's applications to become a national bank through its acquisition of Golden Pacific Bancorp, Inc. Under the new terms, SoFi Technologies should become the parent company of SoFi Bank. Although SoFi is expected to benefit from this development, the company’s share price gave back early gains in the subsequent days, falling to the 52-week low territory.  

Recent Quarterly Performance & Analysts’ Estimates

Despite reporting higher-than-expected top and bottom line on January 26th, LendingClub stock dropped over 17% in after-hours trading amid FQ1 expected net income figures. In Q4, LC's revenue increased 245.5% year-over-year to $262.2 million, topping the Wall Street revenue consensus by $16.05 million. The lion's share of LendingClub's revenues made up for marketplace revenue. However, its marketplace revenue was down 2% on a quarter-over-quarter basis to $170.56 million in the fourth quarter, showing a decrease in loans sold through the marketplace. Moreover, the company's net interest revenue grew 27% quarter-over-quarter to $83.13 million

The company’s consolidated net income stood at $29.1 million for the quarter, representing a 7% quarter-over-quarter improvement. As a result, its GAAP EPS has been reported at $0.27, beating analysts’ estimates by $0.05.

When it comes to LendingClub's guidance, the company sees its FQ1 2022 revenue and consolidated net income in the range of $255-265 million and $25-30 million, respectively. Wall Street expects the company's EPS to be $0.30 in 1Q2022. Also, its top line is expected to grow 149.93% YoY to $264.52 million.

On November 10th, SoFi Technologies issued an earnings report for the third quarter of 2021. In Q3, its total revenue increased 35.5% year-over-year to $272.01 million. Strong revenue growth across its key segments supported the company in beating the revenue consensus estimates by $16.38 million. In addition, SOFI's GAAP EPS was ($0.05), topping estimates by $0.09. 

Furthermore, SoFi reported the fifth consecutive quarter of positive Adjusted EBITDA of $10.26 million. Finally, fintech also expanded its customer base, growing by 96% year-over-year to 2.9 million. 

For the fourth quarter of 2021, analysts project SoFi's EPS to be ($0.06). Besides, analysts expect SOFI's revenues for the current quarter to stand at $281.71 million. 

Comparing Valuations

In terms of FWD Price/Sales, SOFI is currently trading at 8.95x, which is 509% higher than LC, whose multiple presently is 1.47x. Besides, LendingClub's multiple looks undervalued compared to the sector's median of 3.30x. 

When it comes to the FWD Price/Book multiple, SOFI's P/B multiple of 1.85x also exceeds LC's multiple of 1.54x. 

In addition, LendingClub is projected to deliver impressive YoY Revenue and EBITDA growth of 99.67% and 201.21%%, respectively. These numbers exceed SoFi Technologies' as well as the sector's median respective figures. 

The Bottom Line 

In my opinion, LC is a better pick than SOFI at these levels. LendingClub recently delivered a solid fourth-quarter report with relatively better growth rates. In addition, it looks cheaper from a valuation standpoint. Finally, the post-earnings sell-off grant contrarian investors to scoop shares of this high-growth fintech on the dip.

LC shares were trading at $17.77 per share on Monday morning, up $0.89 (+5.27%). Year-to-date, LC has declined -26.51%, versus a -6.37% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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