Why SoFi Technologies grew 22.2% in May
Shares of Sofi Technologies (SOFI -5.93%) rose 22.2% in May, according to data from S&P Global Market Intelligence.
Part of the reason for last month’s rebound was that SoFi was absolutely decimated in May, after falling 35.2% in April alone. In the previous month, management pre-announced a lower guide for the year after the Biden administration postponed the resumption of student loan repayments until later in the year.
Still, SoFi isn’t just about student loans, as the company showed progress in building out its fintech ecosystem when it released its first-quarter results.
Initially, SoFi fell further after its earnings report, despite higher expectations for earnings and loss per share. Revenue grew at an impressive 49% pace, and net loss per share of $0.14 also beat expectations, with net loss narrowing to $110 million, improving from a net loss of $177.5 million in the first quarter of the previous year. The company also added 408,000 new members and its members used 689,000 more products than a year ago, up 84%. Management also raised its guidance for 2022, after lowering it the previous month as part of the student loan relief extension.
These metrics are definitely solid, but the stock market is still not in the mood for stocks printing such large losses, and the stock fell first after earnings. The surge in personal loans, considered riskier than student and home loans, may be the cause.
However, after the report, several analysts came to the title’s defense. Oppenheimer analyst Dominick Gabriele said:
SoFi is more fee-oriented today, and their original loans are super premium for both students and individuals (yes, even personal). … They learn to take out credit cards, but the card is still a very small part of the business. We are less focused on credit for SoFi compared to other lenders.
During the conference call, SoFi management pointed out that its average FICO score on its borrower base was 746, which is quite high. Unlike other fintechs such as Reached who look further down the credit spectrum, SoFi’s loans should hold up better than others in a downturn, as the analyst said.
After the positive analyst comment, CEO Anthony Noto stepped in and bought 39,000 shares at $6.50 on May 13, increasing his holdings by $253,500. This seemed to start the stock’s big rise, which continued throughout the month as the broader fintech sector rebounded.
Despite May’s rise, SoFi is still trading near all-time lows. So is it still a purchase?
It’s a bit difficult to assess SoFi today, given that it’s growing at a very high rate but still posting significant quarterly losses, while its product mix is changing and its underwriting hasn’t changed. not been through a bad recession.
In the short and medium term, the title is likely to evolve with the evolution of the macroeconomic outlook. This outlook is rather pessimistic at the moment, but things could also turn out better than expected, given that sentiment is almost at an all-time low.
In the long run, SoFi will likely win or lose based on how well it serves customers and whether it continues to sell its core borrowers to more and more products over time. In general, SoFi’s cohort of Prime customers should do well, and I expect SoFi to be a success, ultimately; however, it’s hard to know exactly when the company might become profitable, and a bad recession could turn things upside down. Still, at this low valuation, SoFi is definitely a stock growth investors should study closely.