The company agreed to buy a small Sacramento lender, Golden Pacific, last year. Once the deal closes it will be run as SoFi Bank. The purchase will allow the fintech to cut out the banking middlemen the company must now use. This will give it more revenue on each transaction and, according to CEO Anthony Noto, the opportunity to offer better deals on deposits and loans.
But this week’s surge shouldn’t be seen as a profit by investors. Before the news, SoFi stock was down 14% in the new year. Even after the last two days, the shares are still trading at 33% below where they were a year ago. My own investment in SoFi remains underwater, a loss of about $700 on 200 shares.
A Fan Favorite
Analysts like me have continued to pound the table for SoFi despite the stock’s poor performance.
They point to a massive growth in customer accounts, a broad product offering including checking, brokerage and loans, and to Galileo, which lets other banks become fintechs through its application program interfaces (APIs). I have written that Galileo makes SoFi a banking version of Twilio (NYSE:TWLO). It makes banking services as easy to add as Twilio’s voice APIs make communications.
Stories like this have sent SoFi stock flying during periods of optimism, like May and October last year. But they didn’t help the company get through June and December when pessimism reigned.
No Profit for the Seer
There are two problems for SoFi bulls. The valuation is high relative to revenues and there aren’t yet profits.
For the September quarter, SoFi said it lost almost $30 million, or 5 cents per share, on revenue of $272 million. A bigger loss, as much as 17 cents per share, is expected when it next reports earnings Feb. 9. Revenue is expected to be $291.5 million.
That means investors on Jan. 19 were buying $900 million in money-losing revenue for market cap of almost $11 billion. When growth goes out of fashion, as it has recently, that’s not a good deal. It’s a banking version of Cloudflare (NYSE:NET), the cloud security outfit whose shares have lost more than half their value since November.
Tomorrow Belongs to Noto
SoFi has an outsized reputation because of CEO Noto, who was once chief financial officer of the National Football League, then of Twitter (NYSE:TWTR). He engineered the naming rights deal for the new Los Angeles stadium used by the Los Angeles Rams and LA Chargers. He also directed the SOFI stock IPO in a SPAC deal with Chamath Palihapitiya that closed last May.
A close look at SoFi’s quarterly numbers shows it still not matching up to Noto’s vision. More than half its revenue, $142 million, still came from loan origination fees. About 60% of its loan portfolio at the end of the period consisted of personal loans. Most of the rest came from its original niche, student loans. While home lending grew 75%, it still represented just 2% of the portfolio.
The Bottom Line
The SoFi story is still one of vision and potential.
You won’t find an argument for buying SOFI stock in its quarterly financial reports. You’ll find it in its broad lines of business, including cryptocurrency trades. You’ll find it in its ambitions to do both wholesale and retail business. You’ll find it in its vision to disrupt both the banking and brokerage businesses, putting both into the phones of consumers at a cloud-based price.
If you buy the vision, you’re buying new shares of SoFi on weakness. Despite its gains this week, it’s still weak. If you believe in it, get on board.
On the date of publication, Dana Blankenhorn held long positions in SOFI and NET. 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 Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.