Should Investors Buy SoFi After its Q1 Earnings Report?

  • Sofi (SOFI) fell to below $5 after posting first-quarter results.
  • SOFI stock is in a sustained 2022 slump as investors weigh on second-quarter guidance.
  • Investors may accumulate shares from here.
SoFi headquarters. SOFI stock.

Source: Michael Vi / Shutterstock

SoFi Technologies (NASDAQ:SOFI) took a hit and then stabilized after posting first-quarter (Q1) results. Typical of a growing fintech firm, it reported an increase in revenue while posting earnings per share (EPS) loss. The firm, which offers multiple financial products to customers, added more members. It is on track to reach 10 million users.

However, under current bearish market conditions, the company needs more impressive metrics to win back investors. Shareholders are weighing the modest EPS loss against the business growth. They cannot predict when the company will start reporting profits. Investors should assume that SoFi will keep adding more customers quarterly.

Ticker Company Price
SOFI SoFi Technologies, Inc. $7.49

Markets Expected First Quarter Loss

In Q1, Sofi posted adjusted net revenue up by 49% year-over-year (YOY) to $330.3 million. Its net loss of $110.4 million, or 14 cents a share, comes despite strong member momentum. SoFi added 408,000 new members in the quarter. It ended Q1 with almost 3.9 million total members, up by 70% YOY. Assuming customer growth continues at this rate, the company will eventually reach a 10 million customer milestone.

Shareholders are used to growth companies prioritizing membership figures over profits. The firm added 689,000 new products. It ended with nearly 5.9 million total products, up 84% YOY. As products added per customer increase, operating margins will expand. Customer loyalty will lead to a growth in assets deposited. SoFi does not need to rush to report profits.

Membership Growth Matters for SOFI Stock

SoFi offers a broad product suite. This is a Financial Services Productivity Loop strategy that is pivotal at this time. Customers will familiarize themselves with SoFi’s Galileo and Technisys value proposition. SoFi’s strong guidance reflects that customers like its product offering. In the second quarter, the company expects adjusted net revenue to grow by 39% to 43% YOY to $330 million to $340 million.

For the full year 2022, Sofi raised its adjusted net revenue in the range of $1.505 billion to $1.510 billion.

SoFi is confident that its vertically integrated model is enough competitive advantage. Stock markets view it differently. Shares peaked at over $24 in November 2021. Markets are bracing for difficulties in the lending market. SoFi offers personal loans, including school loans and mortgages. Although it is a high-margin business, the rate-tightening cycle increases default risks.

Reward and Risk Levels Balanced

Before the Federal Reserve started raising interest rates, benefits from SoFi’s mortgage lending margins outweighed its risks. But last week, Upstart (NASDAQ:UPST) scared investors when it cited loan risks.

Investors cannot assume SoFi will continue realizing high margins from loans. The student loan moratorium already forced the company to cut its revenue guidance.

SoFi may improve its customer profile by attracting high-end, affluent customers. They do not need mortgages. They will give its EBITDA profitability a greater lift.

Should You Buy SOFI Stock?

Investors should accumulate SoFi stock. Shares have a better chance than in the last few months of finding a bottom. Short-sellers, who have a 23% short float against the stock, risk a short squeeze. Sofi needs a small reversal in negative sentiment to rally.

When it reports quarterly results again in August 2022, SoFi may exceed its guidance. Additionally, customers leaving traditional banks may sign up for many SoFi products in the quarter.

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.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.


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