While ambitious financial technology (fintech) specialist SoFi Technologies (NASDAQ:SOFI) has enjoyed a robust performance for most of this year, the final three months may be critical. Kicking off the push to the finish line will be the company’s third-quarter earnings results, scheduled for Oct. 30. Though SOFI stock benefitted from expansionary efforts, questions about sustainability are rising.
To be sure, SoFi is pulling out all the stops. Historically focused on financing student loans, the enterprise received a license to become a bank last year. Further, SoFi CEO Anthony Noto revealed to CNBC last month its present gameplan:
“We’re really stealing share from the big banks, and so we’ve been able to add more than $2 billion of deposits in each quarter since getting our bank license, and we reported in Q2, we remain confident that we can add $2 billion plus each quarter, and we’re on track to do that.”
That interview occurred about a week before the Instacart (NASDAQ:CART) initial public offering (IPO), a new listing that SoFi helped to underwrite. As the company’s first foray into the traditional IPO underwriting process, that move represented a make-or-break moment for SOFI stock. Essentially, the fintech may have given up a lot to participate in the public launch.
Unfortunately, CART suffered a disappointing debut, raising concerns about underwriter liabilities.
SOFI Stock May Face the Heat
Although the fintech with aspirations of becoming a full-service financial firm has come alive this year, recent trades present anxieties. In the trailing one-month period, SOFI stock fell nearly 14%. Therefore, SoFi’s Oct. 30 disclosure of its Q3 results may help right the ship.
Certainly, the company is doing everything it can to rejuvenate investor confidence. Earlier Thursday morning, SoFi announced that the buy now, pay later (BNPL) service under Galileo Financial Technologies — its independently owned and operated fintech firm — is “now available for lenders to offer it as a service for their small business clients (SMBs).”
In partnership with other major entities, Galileo can seamlessly offer installment financing options to small businesses, enabling them the flexibility to make larger purchases and better manage their cash flows. As expected, SOFI stock popped on this news.
Nevertheless, serious questions will be asked as market observers pour over the Q3 results. In particular, the mix of SoFi’s total loan originations may raise eyebrows. Yes, in Q2 2023, total loans jumped nearly 23% to $4.38 billion. However, the vast majority of said loans are under the personal category.
Why is that important? Per Fortune, these personal loans are unsecured, meaning no collateral is required. Should the economy fall into a recession, that’s a gargantuan risk profile that SOFI stock is exposed to.
Why It Matters
Interestingly, Fintel’s options flow screener — which filters exclusively for big block trades likely made by institutions — reveals that the three most recent major transactions involve sold calls at the $7.50 and $10 strike prices. These potentially bearish transactions suggest that traders see limited upside around this price range.
On the date of publication, Josh Enomoto 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.
