A management team can make or break the long-term success of an investment. It's good to have a great value proposition or an aspirational mission statement, but if leadership can't execute, then it doesn't really mean a lot. And any disruptive company will always face doubts as it gets off the ground, but a capable, honest management team can work wonders in assuaging those concerns.
SoFi Technologies (SOFI 0.50%) is one innovative company with a truly elite leader. Here's why.
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Under new management
SoFi's founder and original CEO, Mike Cagney, was ousted in 2017 because of a toxic company culture that one former employee described as a "frat house." Sexual harassment lawsuits plagued the company to a point where it was even considering a sale -- until Anthony Noto took over.
Noto's background was perfect for the job. He was a captain in the U.S. Army and later a highly regarded CFO for both Twitter and the NFL. And his time leading Goldman Sachs' technology, media, and telecommunications investment banking segment gave him relevant experience. Noto brought with him a background of discipline and legitimacy that SoFi was desperately lacking.
Beyond fixing the cultural issues SoFi was dealing with, Noto also pivoted the company from its trajectory under Cagney. Noto convinced the board to pull back on loan volume objectives that were promoting quantity rather than quality, resulting in heavy cash burn.
Beyond making SoFi leaner and meaner, he also spearheaded SoFi's transformation from a lender to the first "one-stop shop" in digital finance. He quickly rolled out products in investing, saving, credit, and more to boost cross-selling as well as SoFi's value to users. The company continues to frequently roll out new products to deepen its appeal.
Roughly 50% of Americans use more than one bank, with roughly 80% of those consumers doing so because there has been no adequate solution for all their needs. SoFi's goal is to try and change that.
How's it working?
At a recent investor conference, Noto said the company's digital banking products had officially surpassed its original loan product business in size. Specifically, this segment enjoyed 273% growth last quarter, with contribution margin (which represents revenues minus any directly attributable expenses) also moving in the right direction. Noto is not simply wishing and hoping, he's executing.
To help the company's operations further, Noto spearheaded SoFi's bank charter application, which received conditional approval last year. For years, SoFi dealt with the reality of legacy banks having access to much lower cost of capital. Fortunately, that is no longer the case, and SoFi's profitability will directly benefit as a result. These charters are not just handed to any company, offering investors and customers confidence in SoFi's long-term capabilities.
One of the main concerns with SoFi is that it isn't led by its founder. Founders generally bring with them a sense of personal investment in the given company's long-term success (it's their brainchild, after all), and this passion can be important for delivering results. Any newly hired chief executive has to prove that they possess this same motivation. Fortunately for SoFi shareholders, Noto seems to be very committed.
When speaking recently with Piper Sandler, Noto called working for SoFi the most rewarding thing he has ever done aside from serving the Army. He even stated he wants SoFi to be his "life's work." This is personal for him, as he shared that his parents could have used a product like this when his family was living on food stamps. Now he is in a position to help families struggling in the same way.
SoFi's CEO is a star
Since taking the reins of SoFi, Noto has continuously set ambitious targets and subsequently delivered on them. His track record is pristine, and the early results he has delivered are simply excellent. For a young company full of potential and risk, choosing strong leadership is among the hardest and most important decisions to make. SoFi nailed this one..
