SoFi Technologies (NASDAQ: SOFI) might be on the verge of a rebound after falling off a cliff this year. It doubled last year and then dropped early this year, but it's up more than 40% during the past three months. Such is often the way with the markets, especially young growth stocks.
But there's another young digital bank stock that hasn't taken any break from skyrocketing gains. It also doubled last year, and it's up about 75% in 2024. Should you forget about SoFi and buy Nu Holdings (NYSE: NU) stock instead?
Nu is unstoppable
SoFi and Nu operate similar businesses, with a glaring difference -- they work in different regions. While SoFi is a U.S. star, Nu has a hold on its home country of Brazil, and it's making progress in two newer markets, Mexico and Colombia.
Nu got started in 2013 and went public in 2021. It has consistently reported stellar performance since then, with regular, high double-digit percentage increases in revenue and substantial increases in average revenue per active customer (ARPAC).
It's easy to see why Nu appeals to the Brazilian adult population, more than half of whom are already members. Chief Executive Officer David Velez tried to open a bank account in Brazil for the first time in 2012, with months of documents and phone calls to get it off the ground and high fees to keep it open. Together with a group of similar-minded entrepreneurs, he was able to break through the Brazilian banking oligopoly and offer a better experience.
Nu is all digital, with low fees and high rates on savings. It attracts millions of new customers annually, and although it's already popular in Brazil, that's still where it's drawing most of its new business. Brazil is the largest country in Latin America, with more than 200 million people, so there's ample opportunity to keep adding new members. Now that it's firmly established on its home turf, it's moving on to capture share in new markets. The slow pace of its expansion makes for better financials and keeps the runway long.
The new markets are not yet profitable, as is the case with most new businesses, but the Brazil business is profitable enough for the company to make these kinds of moves without worrying about the bottom line. Even with its growth and expansion, the company has been profitable for the past six quarters, and the profit margin widened from 12% to 17% in the second quarter.
It also caught the eye of legendary investor Warren Buffett, who invested in the company through Berkshire Hathaway in late-stage, pre-initial public offering (IPO) funding and currently has a small stake in the company.
Forget SoFi?
Where does SoFi fit into this? SoFi's performance hasn't been quite as stellar as Nu's, and it's just becoming profitable. It's still fast-growing, and it's also bringing in millions of customers a year.
However, its credit performance has been holding it back. Although it has expanded to a full suite of digital financial services, lending is its original and core business. Lending has slowed down amid high interest rates, and most of its shiny, new profits come from that side of the business. But as interest rates start to decline, the market is sensing that SoFi has become a bargain and will likely rebound quickly.
I own both of these stocks and recommend them both. I see SoFi as being somewhat riskier than Nu, but with big potential. So if you have a lower risk tolerance, you might want to choose Nu over SoFi. Still, each of these companies is disrupting the status quo in its own region and offers the chance for explosive gains for investors.
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Jennifer Saibil has positions in Nu Holdings and SoFi Technologies. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
Should You Ignore SoFi and Buy This Magnificent Digital Bank Stock Instead? was originally published by The Motley Fool