SoFi Is Promising but Too Pricey With Poor Fundamentals

SoFi Technologies (NASDAQ:SOFI) went public in June 2021 as one of the latest SPAC stocks on the market. But is SOFI stock worth a buy? I first wrote about it in April 2021, and this was my conclusion:

the Social Finance (SoFi stock) logo is displayed on a smartphone.

Source: rafapress /

“I want to see profitability. Buying IPOE stock now is too risky. And the stock is not cheap either. With a premium of over 70%, as IPOE stock price is now trading around $17 per share, compared to the IPO price of $10 per share, this huge premium is not justified. Pay for the future based on hope? Not a sound investment decision.”

A few months later, I still feel the stock is far from an attractive buy. It’s too early to tell if SOFI stock is worthwhile.

Profitability and Fundamentals of SOFI Stock

Overall, the stock is fundamentally flawed. In its first-quarter 2021 results report, SoFi starts by showing seven consecutive quarters of year-over-year (YOY) growth for its members. Then, it focuses on the rapid growth of its financial services and total products.

That’s fine until you get to page 16. Read carefully and you’ll note that net incomes (GAAP) for 2018, 2019 and 2020 were losses of $252 million, $239 million and $224 million respectively. SoFi is not profitable, and this is a very negative factor that shows fundamentally poor performance.

Sofi admitted in its Securities and Exchange Commission (SEC) filing that it might never achieve profitability. The company then stated:

“Our net losses were $141.4 million, $239.7 million and $252.4 million for the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018, respectively. As of September 30, 2020, we had a total permanent deficit of $380.3 million. We may continue to incur net losses in the future, and such losses may fluctuate significantly from quarter to quarter. We will need to generate and sustain significant revenues for our business generally, and achieve greater scale and generate greater operating cash flows from our Financial Services segment in particular, in future periods in order to achieve, maintain or increase our level of profitability.”

It’s still too early to tell if SoFi will ever profit, but so far its fundamentals are disappointing.

SoFi’s Focus on Fintech Lending Is Too Risky

According to Simply Wall Street, SoFi Technologies has placed the core of its business activities in its lending segment, which accounts for 83% of its total revenue. That’s $751 million for the last twelve months ending in the first quarter of 2021.

SoFi offers several other services such as investing, credit cards, credit score monitoring and insurance. But by focusing mainly on lending and refinancing, it is certain to face a lot of competition in the banking and financial industry. Increased competition means pressure to profit margins and net profitability, the weak spot of SoFi’s financial performance.

A report about global fintech lending forecasts for 2021 through 2027 is optimistic. It states that the industry’s market size should rise to $3 trillion by 2027, up from $400 billion in 2020. The increase would occur at a compound annual growth rate (CAGR) of 32.3% during that period of time.

But what if these numbers are too optimistic? If these numbers do not materialize in the future, then SoFi’s business model will be exposed to extra risk.

SOFI Stock’s Dilution and Its Valuation

Analysts expect annual revenue of $973.74 million. Based on its current market capitalization of $13.4 billion, SOFI stock is traded at 13.76x this year’s revenue forecast. That’s not cheap at all.

Annual EPS estimates show a loss of 33 cents for 2021 and a 10 cent loss for 2022. That means if the company is going to profit, it probably won’t happen before next year. Of course, there is no guarantee this will happen in 2023.

SOFI stock could move after its second-quarter results are released on Aug. 12. But no matter what its earnings numbers are, without having a longer record of its financials, it’s too early to evaluate SoFi’s performance aside from its (lack of) profitability. Even a positive EPS surprise might not push the stock higher.

The company has raised plenty of cash by exercising warrants and stock options, and this had created a stock dilution. SoFi reported in its prospectus that it would issue up to 125 million shares of common stock. We should wait and see how these proceeds are used before analyzing the move any further.

SOFI stock is up about 34% in 2021, and this increase was largely fueled by excitement surrounding its initial public offering. It’s still far from being an attractive buy. The next few quarters will show if SoFi is progressing toward profitability. But in the end, high expectations today do not make SOFI stock a bargain.

On the date of publication, Stavros Georgiadis, CFA  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 Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn

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