Shares of SoFi Technologies (NASDAQ:SOFI) stock are jumping higher amid a soft session on Wall Street. Enthusiasm seems to be running high as the company seeks to transition to a full-service financial institution. To achieve this step, SoFi will help underwrite the upcoming Instacart initial public offering (IPO). Still, risks are abound for SOFI stock if the new listing fails to generate interest.
According to Bloomberg, SoFi will face one of its most important and biggest challenges shortly. It’s one of 20 banks underwriting the Instacart IPO, which could raise up to $616 million. This public market debut represents SoFi’s first IPO traditional underwriting venture. Getting the process right translates to the promise of lucrative fees and the bolstering of its reputation.
Since making its own business debut, SoFi has built a strong ecosystem of providing online loans to college students and individuals seeking personal loans. Notably, it has also helped launch five special purpose acquisition companies (SPACs), or blank-check firms entering the public arena for the purpose of merging with business enterprises.
Now with IPO sentiment possibly reemerging, the fintech has the chance of exercising its ambitions. Still, it might not be an easy road ahead for SoFi or SOFI stock.
SOFI Stock Gets Put to the Test
Generally, the sentiment on Wall Street seems to be optimistic for SOFI stock in relation to the Instacart IPO. As Morningstar analyst Michael Miller notes, the underwriting is a key step in the company’s “broader ambition of being a full-service financial firm and not just an online student and personal loan lender.”
Roth MKM analyst Rohit Kulkarni adds that “SoFi’s role highlights the growing importance of millennials who are attractive customers for both companies.” Nevertheless, it’s not a done deal for SOFI yet because the fintech will play a secondary role to the lead underwriters of the IPO.
Miller points out that it’s also difficult to determine what led to the acceptance of SoFi as a secondary underwriter. “It could just be a question of what SoFi offered to take part of the deal,” the analyst remarked. And that is exactly where the baptism of fire lies for SOFI stock.
According to Reuters, underwriters to traditional IPOs “buy big chunks of an issuing company’s new shares, risking losses if they can’t resell the stock for more than they paid.” Put another way, it’s not going to be a free ride for SoFi.
On that note, investors should focus on options flow data, or big block trades likely made by institutions. One of the biggest SoFi trades is the acquisition of $7 put contracts with an expiration date of June 21, 2024.
Why It Matters
According to TipRanks, analysts remain divided over SOFI stock, pegging it with a consensus hold rating. This assessment breaks down as seven buy ratings, seven holds and four sell ratings. Overall, the average price target for SOFI stock lands at $9.85, implying about 9% upside potential.
On the date of publication, Josh Enomoto did not hold (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.
