SoFi Technologies (NASDAQ:SOFI) has been baffling bulls since it came public as a SPAC in 2021..
This year has been no exception. It’s down 24% in 2024, 36% over the last year.
The promise was that SoFi would be the financial supermarket of the millennial age. It would offer wholesale services to other banks, banking and brokerage services to young consumers. It paid to get its name on the LA Rams’ new stadium.
What went wrong?
The SoFi Failure
SoFi is a bank. It bought Golden Pacific Bank in early 2022.
There’s your problem.
Banks borrow money from consumers and try to lend it at a profit. From its start in 2012, SoFi has focused on young, risky credits. It was early on the refinancing of student debt and was hit by the Biden era moratoriums. Like other banks, many of its reserves were in long-term loans that lost value when inflation forced the Federal Reserve to hike interest rates.
While SoFi has grown, it hasn’t prospered. Its first profit as a public company came in last year’s fourth quarter. The most recent quarter saw a profit of 1 cent per share.
Analysts pounded the table on behalf of SoFi for years. I was one of them. We were lured by its promises of stock trades, crypto, and its technology offerings. But most analysts have walked away, including this reporter.
TipRanks now counts 16 professional analysts following the stock, 4 of them buyers and 3 sellers. Traders at Stocktwits are generally bearish on the name.
The SoFi Turnaround
A look inside that June quarter earnings report offers hope.
SoFi added 643,000 new customers in the quarter. The total is up 41% from a year ago. It offers a savings rate of 4.6% to customers who do direct deposit and bring it $5,000 per month. That business is profitable. Business Insider ranks SoFi as one of the top online banks.
The Technology Platform now handles over 158 million accounts and brought in $95 million during the quarter, one third of it as profit. These are third party services for other banks and brokers through its Galileo and Technisys acquisitions.
The weakness is in SoFi Invest, its brokerage business. Revenue there was up just 1% and represents about 20% of the business. It’s getting beaten by Robinhood Markets (NASDAQ:HOOD), which has a better brand name and more cache among frequent traders.
SoFi is aiming SoFi Invest at young investors, not traders. CNBC ranks SoFi Invest the best robo-advisor for “added perks,” The company is offering $1,000 to switch and $75 to cover the fees rivals might charge for switching.
SoFi is growing, by almost every metric that matters. Revenue is growing faster than expenses now that all elements of the business are in place. Its niche among millennial-age strivers is established, and those consumers are now entering their 40s, prime money-making years.
The Bottom Line
SPACs were sold as a get rich quick scheme. They only made their sponsors rich.
Most were haunted houses. SoFi, to its credit, was just an unfinished house, a foundation and some plans.
But the structure is coming into focus now. SoFi is an online bank, with a technology annex and a brokerage in the back. It is subject to all the strengths and weaknesses of those businesses. The stock won’t ride ahead of them.
A patient investor can buy SoFi today and expect a reasonable return. The company is growing and profitable. It has a brand that is bigger than itself. In five years, it might be worth $15 per share.
Just don’t expect miracles.
On the date of publication, Dana Blankenhorn 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
