Explaining Galileo's Total Accounts Drop
Chime recently filed a S1 to begin their IPO process. Their Prospectus states that they are divesting from Galileo and beginning to transition into ChimeCore.
Chime has begun its IPO process. After CoreWeave CRWV 0.00%↑’s IPO and the beginning of “Liberation Day”, many IPO candidates chose to wait for the macro-uncertainty to clear up. It seems like with Chime’s S1 filing and eToro’s debut on 5/14, the sun is starting to shine again. How does Chime’s IPO affect SoFi SOFI 0.00%↑? We will unpack the headwinds SoFi will face because of Chime’s divestment away from Galileo, and the tailwinds following Chime’s valuation.
Chime, according to their S1 filing, “entered into an amendment with Galileo that modifies the terms of our existing agreement to remove certain minimum monthly payments and provides for the payment of an $18 million termination fee by us in March 2026. While our agreement with Galileo only permits Galileo to terminate the agreement for cause prior to June 30, 2026, and provides that Galileo will provide assistance migrating services to Chime or a new processor if requested by us, if our agreement with Galileo terminated earlier than we expect, we would need to transition the portion of member transactions currently processed through Galileo to ChimeCore or an alternate processor, which may result in additional costs, require additional management attention, and otherwise adversely affect our business, financial condition and results of operations. For additional risks related to our dependence on third-party service providers, see the risk factor titled “In addition to our bank partners, we rely on third parties and their systems for a variety of services, and we face risks associated with any failure by these third parties to adequately perform these services, which may adversely affect our business, financial condition, and results of operations.”
Source: Chime S1 Filing SEC
This explains why Galileo suffered a -10 million drop in total accounts managed in SoFi’s Q1 2025 report. Some context to note that "transactions have historically been processed by Galileo Financial Technologies, LLC (“Galileo”), a third-party payment processor, though we are in the process of transitioning our members’ transactions to being processed by ChimeCore; as of the end of 2024, we had transitioned all credit card transactions to being processed by ChimeCore, while all debit card transactions were still processed by Galileo. In sum, they are bringing their transactions in-house for processing. No surprise there. Once you reach a certain scale, that's what they do because suddenly the economics of it make financial sense. Regardless of economics, this still poses a risk to SoFi’s “AWS of Fintech” vision, as it faces a problem attracting and retaining clients to the tech platform.
SoFi’s Investor Relations team replied with comments about Chime’s IPO, stating the headwinds following Chime’s divestment from Galileo are already accounted for: “Chime's disclosures in their SEC Form S-1 were factored into our company guidance and the Tech Platform guidance previously communicated. We remain confident in our outlook and require no change to that previous guidance.”
Moving to the bright side, let’s discuss why Chime’s IPO valuation might prove to be a tailwind for SoFi stock in the near term. Chime’s valuation proves just how undervalued SoFi is right now. While still private, Chime just released Q1 2025 results with $519M in revenue and $12.9M in net income. They released the numbers in anticipation of going public soon. SoFi has higher revenue ($771M in Q1 2025) and higher net income ($71M) and slightly higher growth than Chime (33% YoY vs 32%). Chime's last funding round was at a $25B valuation in 2021. While private valuations declined in 2022 and 2023, a December 2024 report put their valuation back around $25B. Some other sources suggested a valuation between $10B-$21B, also done in 2024. There has been speculation that they are targeting an IPO valuation around $40B, but all of this is unofficial. What would those numbers imply about SoFi? At a $10B valuation, their P/S would be roughly equivalent to SoFi. I seriously doubt they would be going public at a 60% discount to their 2021 valuation. This is the absolute floor. At $21B, their P/S would imply that SoFi is worth around $31. At $25B, SoFi is worth $37. At $40B, SoFi is worth $59.50. Remember, SoFi has better margins and equivalent growth, so it should, in theory, get a higher multiple, and these numbers should be higher. Also, Chime’s valuation destroys the “just a bank” narrative for SoFi, as Chime is only a fast-growing neo-bank.
With no doubt, I am disheartened by the loss of total accounts on Galileo. However, the future still looks bright with SoFi’s LPB and the macro-tailwinds later this year (rate cuts, refi, student loans).
CEO Anthony Noto will discuss SoFi’s tech platform at 1:40 P.M. ET at the J.P. Morgan Global Technology, Media and Communications Conference.
DISCLAIMER: I have long positions in SOFI -0.94%↓
Sources for Publication:
Chime S1 Filing SEC
SoFi Investor Relations
SoFi Q1 2025 Financials
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