12th April 2024

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Business Industry and Financial

SoFi’s Full-Service Ambitions Face Key Test in Instacart IPO

(Bloomberg) — SoFi Technologies Inc.’s effort to transition from upstart fintech firm to the big leagues of financial institutions will face an important step possibly as soon as next week when the company helps take Instacart Inc. public.

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SoFi is one of 20 banks underwriting the initial public offering, which a filing Monday showed could raise as much as $616 million. The move marks SoFi’s first foray into a business that comes with the promise of big fees and reputational prowess.

The San Francisco-based company has long been known as an online lender to college students and those seeking personal loans, and it has helped launch five blank-check firms in recent years. But it has yet to crack into a traditional IPO market that’s been all but dormant for the past 18 months.

SoFi was quick to notify users via its mobile app and email just hours after Instacart’s filing, alerting account holders to submit a request for shares, with a premium grade of members told they’ll “even get preferred access to the IPO allocation.”

The firm has been open about its plans to become a top 10 financial institution in the US, and Chief Executive Officer Anthony Noto highlighted its role in Instacart’s listing as part of its goals at a Goldman Sachs Group Inc. conference last week.

The underwriting marks a key step for SoFi in its “broader ambition of being a full-service financial firm and not just an online student and personal loan lender,” according to Morningstar analyst Michael Miller. Instacart will mark its “first real success,” he said.

The listing by Instacart may value the grocery-delivery business at as much as $9.3 billion. The company plans to sell 14.1 million new shares at a range of $26 to $28 each, it said in the Monday filing. The firm will now hit the road with its bankers to court investors, and is considering pricing the listing on Sept. 19.

A SoFi representative declined to comment.

Read more: SoFi CEO Aims to Turn Former Anti-Bank Into Financial Titan

As SoFi’s app alert shows, its position may give Instacart more access to the type of retail investors that fueled the meme-stock mania in 2021 and pushed shares of money-losing electric vehicle startups to nose-bleed valuations.

“SoFi’s role highlights the growing importance of millennials who are attractive customers for both companies,” said Roth MKM analyst Rohit Kulkarni.

Beyond Loans

SoFi expects to turn a profit for the first time by the end of the year as it expands beyond student loans and beefs up its offerings. The company expanded into mortgages and other parts of the financial-services market before going public in 2021 by merging with a special purpose acquisition company.

Instacart is one of a trio of higher-profile listings expected to go public in the coming weeks, along with semiconductor designer Arm Holdings Ltd. and marketing and data automation provider Klaviyo. For the banks working on Arm’s more than $5 billion IPO, fees could be upwards of $100 million, showcasing the hefty returns the underwriting business can offer.

The success of those debuts also stands to be a crucial test for Wall Street banks that have been deprived of IPO fees for the better part of two years as that market has been in the doldrums.

However, SoFi will face stiff competition as it attempts to build on its Instacart work and get in on more of the action as public-market fundraising picks up. That’s in part because the firm lacks the scale and experience of other potential underwriters, said Morningstar’s Miller.

The online bank will play a secondary role to the lead underwriters on Instacart’s listing — Goldman Sachs and JPMorgan Chase & Co. — and is expected to cater to its retail clients.

“Working with SoFi will give them broader exposure with retail traders than if they had just used another traditional underwriter, but it’s hard to say if that’s what led to the decision,” Miller said. “It could just be a question of what SoFi offered to take part of the deal.”

–With assistance from Paige Smith and Michael Tsang.

(Updates with details on offering to retail traders in fourth paragraph.)

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