Don’t Mistake SoFi As a Tech Disruptor


After conducting more research on SoFi Technologies (NASDAQ:SOFI) stock, I’m even more convinced that the company should not be primarily viewed as a tech firm. I have doubts about how differentiated SoFi is from conventional banks and other websites.

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

Moreover, the extremely high valuation of SOFI stock still deters me from recommending the shares.

Also worth considering is that the name appears to have been hurt by the recent weakness of meme stocks. Since I expect the latter trend to continue for an extended period, that’s another reason for investors to be cautious on SoFi, in my view.

So, although I continue to respect the company’s ability to attract high numbers of millennial customers and I’m impressed by the background of its CEO, I’m still not upbeat on SOFI stock.

 SoFi Does Not Appear to Be a Tech Company

In his July 3 column on SOFI stock, InvestorPlace senior analyst Luke Lango outlined SoFi’s core services.

For the most part, the products offered by SoFi appear to be widely available on apps, either from conventional banks or other types of companies. For example, Lango reports that “SoFi Money…is a cash management account that functions similarly to a checking or savings account with zero fees and a featuring an attached debit card.”

With Zelle, an app utilized by multiple conventional banks, users can send, request, or receive money.

Zelle also appears to be compatible with debit cards, and no fees are paid to obtain or maintain it.

Lango described SoFi Invest as a “mobile investing account that allows consumers to invest in stocks, ETFs and cryptocurrencies using the funds they have in their SoFi Money account.” Of course, a wide range of platforms, including Robinhood and Interactive Brokers (NASDAQ:IBKR), allow consumers to invest in stock, ETFs and other assets through apps that can be easily connected to their checking accounts.

Finally, he noted that SoFi offers a credit card and free financial education, along with budget software. Many banks’ websites and apps provide those services.

Like many banks, SoFi seems to be primarily a lender that provides some digital services, rather than a tech company with one or more highly advanced, innovative products.

Also important is that SoFi appears to largely depend on loans, not tech products, for help with its bottom line.

Galileo Doesn’t Look Like a Game-Changer

SoFi does have Galileo, which does appear to be a true fintech business. But in 2019, Galileo’s top line came in at $100 million, versus SoFi’s $443 million, so Galileo’s growth is unlikely to move the needle a great deal for SOFI stock.

And as I pointed out in my last column on SoFi, Galileo “basically appears to be a financial technology outsourcing company i.e., it provides technology to financial institutions.” As a result, I don’t view Galileo as in any way disruptive.

Meme Stock Weakness Is a Factor

In recent columns, I’ve pointed out that meme stocks are retreating as millennials spend more money on other activities and government stimulus wanes. That trend appears to have undermined SOFI stock in the last several weeks, as the shares tumbled 27% in the month.

As I mentioned earlier, I expect that trend to last for a while. The retreat of the meme stocks should be a drag on SOFI stock in the short and medium term.

SoFi’s Positive Drivers

In a July 13 column, Lango noted that downloads of SoFi’s Android app have been climbing significantly, and he has indicated that it is very popular among millennials. Indeed, I continue to believe that SoFi , because of its student loan business, has the ability to easily reach out to and recruit millennials. Indeed, the company is growing extraordinarily rapidly, as its revenue increased 20% in Q1 versus Q4.

I also believe, as multiple other pundits have said, that SoFi’s CEO, Anthony Nolo, appears to be a very strong leader. Before joining SoFi, Anthony Nolo was COO of Twitter (NYSE:TWTR), and before that he was co-head of global TMT investment banking at Goldman Sachs.

The Bottom Line on SOFI Stock

SoFi does not appear to be an innovative tech company that warrants gigantic valuations based on the notion that its products are likely to become extremely widespread and highly profitable in the future.

Nonetheless, despite their recent pullback, the shares still change hands for about 13x analysts’ average 2021 revenue estimate for the company. That is a high valuation that should be reserved for companies with disruptive products and/or the ability to generate demand of gigantic proportions.

I don’t think that SoFi fits in either of those categories.

Meanwhile, the shares are tumbling due to meme stock weakness and that phenomenon is poised to continue for a long time.

Given these points, I continue to urge investors to sell SOFI stock.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

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