SoFi Technologies (NASDAQ:SOFI) stock doesn’t look good in the short term, but that doesn’t mean it isn’t worth buying.
Its short-term indicators, as well as its financial results, scream sell. But its plans, its trends, and its leadership all tell analysts to recommend you buy it.
But the longer term future looks very different.
APIs are a big deal like that. They let any company enter the business the API defines. It’s why Zoom Video (NASDAQ:ZM) keeps growing beyond its own video business. It’s why Twilio (NASDAQ:TWLO) remains a buy.
APIs make their makers into their industry’s hub. Everything else is a spoke. The API defines which new features all players can offer. They’re the control point.
Fintechs like Robinhood and Chime use Galileo APIs to run their businesses. They get better as the APIs get better.
SoFi understands the value and is capitalizing on it. It hired Derek White, who had been running the financial services cloud of Alphabet’s (NASDAQ:GOOGL) Google, to run Galileo. It also leaves him alone.
A Closer Look at SOFI Stock
There’s another reason that people like TV analyst Jim Cramer believe in SoFi.
That reason is CEO Anthony Noto. Everything he has done has worked.
Angel investors like to say they bet on the jockey and not on the horse. They evaluate the CEO, deciding whether to invest based on their leadership qualities and vision.
Our Will Ashworth agrees with me about Noto. He likes Noto’s entire executive team, and the board of directors is strong. He recommends buying it anywhere south of $20/share.
SoFi stock opens for trade July 21 at a little over $15.
Risks to SoFi
The problem with all this is it’s a bet on the future, not on today.
Today lending represents 83% of SoFi’s business. Revenue for the four quarters ending last March was $751 million. The market cap is $12 billion.
SoFi doesn’t report earnings again until August 12. A small loss is expected. In fact, losses are expected well into next year.
Our Mark Hake looked at SoFi’s own earnings estimates last month. The company estimates it will earn $21 million before income taxes, depreciation and amortization in the second half of 2021, the EBITDA beloved of financial analysts.
The reason it expects rising earnings is “technology services,” in other words Galileo. He thinks SOFI stock is worth between $23.81-$27.80 per share.
The Bottom Line
It’s true that right now SoFi is just another online lender. It’s also true that, because it came public through a SPAC, most of the value of SoFi is held by insiders and public investors are seeing crumbs.
Based on its fundamentals, SoFi stock should cost even less than it does. That’s why analysts like Cramer want it to nudge lower before they pounce.
But if you wait on some mythical buy point you may never get in. If an investment is good, you buy it.
I still think SoFi will come good.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.