SoFi Technologies Needs to Gain API Traction Before Once-SPAC Shares Will Move

It seems everyone is pounding the table for SoFi Technologies (NASDAQ:SOFI) stock. Even me. While I was skeptical of the SPAC deal that turned IPOE shares into SOFI stock at the start of June, I still think it’s good for the long run.

the Social Finance (SoFi) logo is displayed on a smartphone.
Source: rafapress /

Much of that is based on faith in CEO Anthony Noto, formerly with Facebook (NASDAQ:FB), Twitter (NASDAQ:TWTR), and the National Football League. (That’s why SoFi’s name is on the new Los Angeles Rams’ stadium.)

CNBC’s Jim Cramer loves Noto. So do both analysts following it. They aren’t alone.

In that case, why is SOFI still locked near its June 1 price. You can buy it June 29 for about $20.25 a share. Should you?

SOFI Stock Bull Case

SoFi started as a lender, beginning with student loans. It would sell consumers on terms, then re-sell the loans to banks. It has since become an online banker and broker as well.

But the secret sauce is Galileo, which it bought last year. Galileo offers “banking APIs,” application program interfaces that let clients build out digital banking offerings. Clients include Chime and Robinhood, two of the hottest pre-IPO fintechs around.

Because SoFi competes with Galileo customers. it hired Derek White, who formerly ran Alphabet’s (NASDAQ:GOOGL) Google Cloud financial services operation, to run the unit autonomously. The banking press is rubbing White’s baldpate with glee.

The Stall Case

Why, then, does SoFi remain locked in its pre-IPO trading range?

One reason is the cost of its SPAC deal. While the transaction totaled $8.65 billion, only $2.4 billion in cash landed on the balance sheet. SPACs were wildly popular early in the year, but they’re far less popular now. Costs like this are a big reason. SPAC sponsors like Chamath Palihapitiya, who took SoFi public, now have a “heads I win, tails you lose” reputation.

Then there’s a lack of information. SoFi revenue for the March quarter, reported on June 1, was $221 million. The June quarter won’t be reported until Sept. 1, when $237 million of revenue is expected.

So, that means investors are mostly left with analyst hype to go on through the summer. This includes SoFi itself, which has projected earnings making it worth $24-$28/share, according to our Mark Hake.

Oppenheimer’s Dominick Gabriele initiated coverage at the beginning of June with an “outperform” rating and a $25 price target. Rosenblatt Securities’ Sean Horgan last week maintained his “buy” rating and set a price target of $30.

Over the last year, however, 83% of SoFi revenues have come from banking. The expectation is that the brokerage, which competes with Robinhood but now sells SPACs as well as stocks, will start to take off. But if the brokerage doesn’t take off, investors may be out of luck, as with past online bank efforts LendingClub (NYSE:LC) and Affirm Holdings (NASDAQ:AFRM).

Then there’s the specter of deflation raised by our Josh Enomoto. Technology creates deflation. An online bank has neither branches, nor tellers nor loan managers. But deflation is very, very bad for banking.

The only way out for banks, including SoFi, is to generate fee income. While SoFi’s brokerage is free to use, it’s selling that order flow, as Robinhood does, generating fees. The Galileo business plan is also fee-based.

The Bottom Line

We still have time to get in on the ground floor with SoFi.

Financial results aren’t due until September. Until its business model starts to prove out, it’s a pure speculation.

This means you don’t throw any money into SoFi stock that you can’t afford to lose. You’re betting on Noto, on his fee-based business model and on the creativity of his team. The bet looks good now, but there are no guarantees.

On the date of publication, Dana Blankenhorn held a LONG position in FB. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.

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