SoFi CEO on company outlook after SPAC merger
Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland speak with SoFi CEO Anthony Noto about the company’s SPAC merger.
Video transcript
JULIE HYMAN: We are on SPAC watch still to start off 2021. That trend shows no signs of abating. And one of the hot SPACs that we're watching today, or the target of a SPAC, I should say, is SoFi. That's the lending startup.
It has agreed to be acquired by one of Chamath Palihapitiya's SPACs, Social Capital Hedosophia Holdings Corp. V. That's the fifth one of those he has started. It values the company at $8.65 billion. And the CEO of SoFi, Anthony Noto, is joining us now.
Anthony, thank you for being here. Appreciate it. SoFi has been talking about an IPO or going public in some fashion for, what, a couple of years now, it feels like. So talk me through your process here over the past couple of years and how you ended up here.
ANTHONY NOTO: Yeah, when I arrived in 2018, we put the IPO plans on the shelf, so to speak, so that we could really pivot the company to be a comprehensive solution for all your financial needs all at your fingertips on your mobile device. So we spent 2018 and '19 launching a digital native mobile app, launching SoFi Money, SoFi Invest, SoFi Credit Card, SoFi Mortgage, the school loans. And then recently, we add the credit card this year.
So that was the focus for the first two years. And now that we have all those products up, and we're the only place that can provide a comprehensive solution set across all those products on your mobile phone, we started to make traction on our strategy, which is really starting to prove itself out quite meaningfully, and had record revenue and EBITDA in the third quarter of 2020 and felt it was the right time to go and chose to do a SPAC as opposed to a regular IPO. And the team is really excited and did a great job to get us to this point over the last three years. But now it's the time to take it to the next step.
MYLES UDLAND: You know, Anthony, I'd love to talk about the trends you guys have seen in your business this year during the pandemic. It's been such an interesting time for, you know, not only the consumer finance industry broadly, but the way that consumers have kind of reacted to this disruption in their own finances, their own working situation. What has that been like for you? And how different, I guess, does the business exit 2020 than perhaps that initial reaction in March maybe had you guys fearing?
ANTHONY NOTO: Yeah, we came into 2021 really hitting on all cylinders in January and February. And as we hit the disruption in March and the market dislocations and the uncertainty for liquidity, we did have to pull back on our lending business. Surprisingly, out SoFi Invest business, our brokerage business where you can buy single stocks, robo advisory and Bitcoin and a couple of other cryptocurrencies, really actually started to accelerate as people were spending more time at home and interest rates went to zero. That business really benefited.
We also saw a significant pickup in home loan refinancing because rates were low. So the fact that we have this diversified portfolio for consumers also actually helps us on the business side when you have different cycles hitting peaks and valleys. And so it was definitely disruptive in the second quarter of 2020 on the lending side more holistically. But overall, we've been able to really leverage the different interest rate environments in the second half of the year to deliver really strong results in the third quarter with our Student Loan and Personal and business still being down, just because we're being more prudent, and also because of the CARES Act.
But the rest of the business, Home Loans and the Invest business, as well as our Technology Platform business with Galileo really benefited from the sector acceleration. And that's the new news, is the underlying platform that we're using for payments, for SoFi Money, is also an enterprise business that diversifies our revenue. And it gives us a really strong tailwind in this environment, where people are switching from physical banking to digital banking. So we very much have a consumer-facing business and an enterprise-facing business now.
BRIAN SOZZI: Anthony, in a press release detailing the transaction, a lot of focus is made on having the right investors, building the right capitalizations. You can ultimately get a bank charter. If an investor is looking to invest in your company at some point, when should that bank charter-- when does that come through? Do you have any sense?
ANTHONY NOTO: Well, we applied to the OCC and received preliminary conditional approval, which is an important big step. Now the next step will be to apply to the Federal Reserve. And we're working on doing that now, and then ultimately also the FDIC. So we're really encouraged by the progress we've made so far and look to continue to accelerate that path now that we're doing this merger with Social Capital and Hedosophia to become a public company. It switches our capitalization from preferring and common to all common, which is necessary to get the license.
JULIE HYMAN: And we're showing the stock there now. It looks like investors in that are please invited to the target that they have chosen. Anthony, talk to me a little bit more about the bank charter. What does that do for you as a company? What does that do for your customers that you're not doing for them as is?
ANTHONY NOTO: It significantly lowers our cost to fund loans. We go from basically paying 2% to 3% to borrow money to then lend to our members to whatever we charge on deposits. And the bank license gives you the ability to use your customer deposits that are now insured to lend to other people. And so it's a huge cost savings that we can choose to pass on to consumers in lower interest rates.
In addition to that, it allows us in SoFi Money to offer whatever interest rate we would like as it relates to checking and savings, which is also something that we'll be able to call SoFi Money post having the bank licence. And so it's a real game changer, quite frankly, in terms of cost and the ability to better serve more people and at lower-- lower interest rates on loans and higher interest rates on SoFi Money.
JULIE HYMAN: Now, speaking of being able to serve more people, the last I saw you guys have 1.8 million members, which is a lot smaller than the biggest banks, but still, 1.8 million is nothing to sneeze at. What's the target there? What do you guys want to grow to in terms of membership, say, by the end of 2021?
ANTHONY NOTO: Yeah, we don't have a specific target by the end of '21. But we think over the next five years, we can increase the magnitude of entire member base quite meaningfully several fold. We don't have a specific target that we're sharing at this time. But we're seeing six quarters accelerating year-over-year growth in our member base.
That acceleration started in Q3 of 2019 in the mid 30s. And in the third quarter, we just grew 75% year-over-year in member growth and it's accelerated every quarter since the third quarter of 2019. So we're really encouraged by the reaction of consumers to this comprehensive suite of products, and all being one-stop shop on our phone. And having the vertical integration with Galileo gives us a cost advantage, which, again, allows us to serve our members better.
MYLES UDLAND: And, you know, Anthony, just thinking more broadly about the decision to come public via a SPAC, you're no stranger to capital markets. I'm curious what this current moment looks like to you. The options for companies that want to come public are so different today than they've been in the last couple of decades. Talk us through that decision and sort of how you see the landscape today from your vantage point.
ANTHONY NOTO: Yeah, we see a SPAC to a public offering as a unique opportunity for a company like ours to spend more time with investors before we actually start trading as a public company. So we can spend the next 30 to 45 days while we're going through the registration process and with the FCC with our S-4 and the proxy solicitation process really educating by side and on our company so that when we do go public, there's a better understanding of what our strategy is, what the market opportunity in front of us is, and then the magnitude of the investment that we're making. We have three different business lines today. They're growing at very different rates and have different levels of profitability.
We have SoFi Lending. And then we have SoFi Technology Platform, and then SoFi Financial Services. And helping people understand what phase of growth each of those are in and at what phase of profitability I think is really critical.
The second point is there's much more certainty in completing a deal through a SPAC as opposed to a regular IPO. When it's announced, you largely have gotten the pipe done. And it's a matter of going through the process with the SEC and taking-- taking the vote.
That's not the case with an IPO. You could become-- you could disclosure your S-1 publicly and then not be able to get the deal done for a variety of reasons unrelated to your business. And then the last thing I'd say is you are allowed to use longer financial expectations than just the current backward-looking expectation-- backward-looking results, I mean.
BRIAN SOZZI: Anthony, the last time I saw you physically was in our studios in New York City in April 2019. And we had a really long discussion on corporate culture. And you told me Brian, I want to get our corporate culture right. I want to rebuild it, because there were a lot of concerns about corporate culture at SoFi when you started, which is why, among many reasons, you were brought in. Where do you stand on those efforts as you go public?
ANTHONY NOTO: Yeah, I think we've made really good progress. I'm proud of the company we're building. We have a mission that people are very passionate about. We're having a huge impact on people's lives every day, and that's really rewarding.
It's not just what we do, though. It's also how we do it. And so we've defined 11 core values, which we'll disclose in our S-4 statement as part of the filing.
In 2021, we want to take that progress in company-building stuff to the next level. Our number one priority for the year is to build a durable culture of diversity and a place where people love to work. We've scaled the business. Now need the scale the organization. So it's absolutely a priority.
JULIE HYMAN: Right, Anthony Noto, thank you so much for being here. Congratulations on the deal. Hope to talk to you as or after you guys close. Appreciate it.
ANTHONY NOTO: Thank you so much. Thanks for having me. Have a great day.
JULIE HYMAN: You too. Anthony Noto is CEO of SoFi.
