Upstart vs. SoFi: Which Fintech Stock Reigns Supreme?

Upstart and SoFi Technologies are fintech companies with different business models. Upstart uses AI to approve loans for banks, credit unions, and auto dealerships, while SoFi provides a range of financial services, including loans, insurance, and banking services. Upstart's growth slowed in 2022 and 2023 due to soaring interest rates, but is expected to accelerate again in 2024. SoFi's growth is still cooling off, but its adjusted EBITDA margin is expected to expand to 26% in 2024. Upstart trades at 22 times next year's adjusted EBITDA, while SoFi trades at roughly 23 times next year's adjusted EBITDA.

Upstart (NASDAQ: UPST) and SoFi Technologies (NASDAQ: SOFI) are prominent players in the fintech landscape, each with distinct business models and growth trajectories. Upstart leverages AI to approve loans for banks, credit unions, and auto dealerships, focusing on non-traditional data points for a broader range of loan approvals. SoFi, on the other hand, provides a comprehensive suite of financial services, including loans, insurance, banking, and investment tools, operating as a digital-only direct bank.

Upstart's Resurgence

Upstart's growth decelerated in 2022 and 2023 due to soaring interest rates, which chilled the demand for new loans. However, the company's growth has accelerated again in 2024 as interest rates have declined. From 2024 to 2027, analysts expect Upstart's revenue and adjusted EBITDA to grow at a compound annual growth rate (CAGR) of 36% and 245%, respectively [1]. This robust growth is reflected in its stock price, which has appreciated from $20 at its IPO in December 2020 to $63 today.

SoFi's Growth and Challenges

SoFi's growth has been impacted by several macro headwinds, including the temporary suspension of student loan payments and rising interest rates. Despite these challenges, SoFi's adjusted EBITDA margin is expected to expand to 26% in 2024 [1]. The company's stock, which opened at $21.97 after its SPAC merger in June 2021, now trades at roughly $23.

Valuation and Future Prospects

Both Upstart and SoFi are trading at attractive valuations relative to their growth potential. Upstart trades at 22 times next year's adjusted EBITDA, while SoFi trades at roughly 23 times [1]. Experts have noted that Upstart's growth trajectory and AI-driven value proposition make it a compelling investment, while SoFi's diverse service offerings and expanding ecosystem present long-term growth opportunities.

Conclusion

As fintech companies continue to innovate and adapt to changing market conditions, Upstart and SoFi remain at the forefront of the industry. While both companies face unique challenges, their strong growth prospects and attractive valuations make them compelling choices for investors seeking exposure to the fintech sector.

References:
[1] https://finance.yahoo.com/news/better-fintech-stock-upstart-vs-090500618.html
[2] https://seekingalpha.com/article/4814422-upstart-gaap-inflection-point