Last week, SoFi (NASDAQ:SOFI) issued a weak outlook for 2022. Once again, Chief Executive Officer Anthony Noto blamed the student loan moratorium for lowering Sofi’s revenue outlook. President Joe Biden extended the federal student loan payment moratorium by four more months, to August 31, 2022. SOFI stock reacted negatively to the news. However, it also dropped for another reason.
The company snuck in an announcement that three members of its Board of Directors will step down. This is a blow that bullish investors cannot ignore.
Clay Wilkes was the Founder of Galileo Financial Technologies. Sofi’s moat in fintech depended heavily on Galileo. Optimistic investors will argue that his exit is a natural progression after Sofi bought Galileo. However, the news is similar to that of Teladoc’s (NYSE:TDOC) executive exodus. After Teladoc bought Livongo, former Livongo executives started a new company.
The leadership disruption is a negative development for Sofi. It cannot afford any distractions that will slow the development of Galileo’s product offering for customers. As the economy worsens and a recession looms, Sofi faces fierce competition from established banks. The latter will have more staff to give customers the best customer service. Sofi will need to hire staff to increase customer support levels.
In February 2022, Sofi’s purchase of Technisys for a whopping $1.1 billion may prove too big to absorb. Sofi wanted Technisys for its leading cloud-native, digital multi-product, core banking platform. The deal diluted Sofi shareholders. It cost 84 million SOFI shares, less than 10% of its fully diluted share count as of Sept. 30, 2021. Sofi’s investment will cast doubt on Galileo’s value in attracting more customers and sustaining growth.
At around $8.00, SOFI stock has a market capitalization of around $6.6 billion. After Sofi expected adjusted EBITDA of no more than $100 million for 2022, $8.00 is a rich valuation. Chances are rising that SOFI stock could trade in the $6.00-$8.00 range throughout this year. The downside price depends on Nasdaq levels. If the correction turns into a bear market, SOFI stock’s long-term fair value is lower. Should it hit its predicted bottom, Sofi’s market capitalization should be around $4.5 billion or $6.00 a share.
On the date of publication, Chris Lau 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.
