SoFi Technologies, Inc. (SOFI) is a financial services company that operates through three segments: Lending; Technology Platform; and Financial Services. It runs Galileo, a technology platform that offers services to financial and non-financial institutions, and Apex, a technology-enabled platform that provides investment custody and clearing brokerage services.
In late August 2022, President Joe Biden announced a new federal student loan forgiveness program, which will cancel up to $20,000 in student loan debt for qualifying borrowers. Along with the student loan forgiveness plan, Biden is expected to end the loan repayment pause that has been in effect for more than two years.
The recent announcement should act as a significant catalyst for SOFI as millions of borrowers will want to refinance their federal student loans.
However, investors are particularly concerned about SOFI’s disappointing financials and decelerating growth. The company’s net loss and loss per share for the second quarter of fiscal 2022 came in at $95.84 million and $0.12, respectively. Also, as of June 30, 2022, its total liabilities stood at $7.16 billion, compared to $4.48 billion as of December 31, 2021.
Furthermore, on August 8, Japanese conglomerate SoftBank Group Corp (SFTBY) revealed plans to sell some or all of its 9% stake in SOFI. SFTBY sold off 49.85 million shares in August, reducing its stake by 52%. After the sale, the multinational conglomerate owns nearly 45.42 million shares.
Also, a recent warning from FedEx is stirring recession fears across the economy and is causing a big sell-off in fintech stocks. SOFI has declined 61.4% in price year-to-date to close the last trading session at $6.05. It is currently trading 75.5% below its 52-week high of $24.65, which it hit on November 11, 2021.
Here is what I think could influence SOFI’s performance in the upcoming months:
Deteriorating Financials
For the fiscal 2022 second quarter ended June 30, 2022, SOFI's non-interest expense increased 15.5% year-over-year to $458.24 million. Its loss before income taxes amounted to $95.72 million. Also, the company’s net loss and loss per share came in at $95.84 million and $0.12, respectively.
As of June 30, 2022, SOFI’s total liabilities stood at $7.16 billion versus $4.48 billion as of December 31, 2021. In addition, cash outflows from operating and investing activities came in at $1.96 billion and $4.92 million, respectively, for the six months that ended June 30.
Bleak Growth Prospects
Analysts expect revenues to increase 41.4% year-over-year to $391.95 million in the fiscal 2022 third quarter (ending September 2022). However, the company is expected to report a loss per share of $0.07 for the ongoing quarter. Also, the company has missed the consensus EPS estimates in three of the trailing four quarters, which is disappointing.
Furthermore, analysts expect the company's loss per share for the fiscal years 2022 and 2023 to come in at $0.32 and $0.10, respectively.
Low Profitability
In terms of trailing-12-month net income margin, SOFI’s negative 28.46% compares to the 27.96% industry average. And its trailing-12-month ROCE and ROTA of negative 8.25% and 2.74%, compared to 11.51% and 1.20% industry averages, respectively. In addition, the stock’s trailing-12-month asset turnover ratio of 0.12% is 38.8% lower than the industry average of 0.20%.
POWR Ratings Reflect Bleak Prospects
SOFI has an overall rating of F, translating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
SOFI has a grade of F for Stability. The stock’s beta of 1.19 justifies the Stability grade. In addition, it has an F grade for Quality, consistent with its lower-than-industry profitability metrics.
SOFI has ranked #105 of 106 stocks in the F-rated Financial Services (Enterprise) industry.
Beyond what I have stated above, we have also given SOFI grades for Sentiment, Growth, Value, and Momentum. Get all SOFI ratings here.
Bottom Line
Fintech stock SOFI has been beaten down in the recent market turbulence and is trading more than 75% below its 52-week high. The company delivered poor second-quarter results, and analysts look bearish on its earnings growth prospects. Moreover, the stock is currently trading below its 50-day and 200-day moving averages of $6.59 and $9.10, respectively, indicating a downtrend.
Although Biden’s announcement on putting an end to the student loan repayment pause would act as a catalyst for SOFI, the financial services company is still expected to witness declining growth in the near term. So, we think the stock is best avoided now.
How Does SoFi Technologies, Inc. (SOFI) Stack Up Against its Peers?
SOFI has an overall POWR Rating of F. One could also check out these other stocks within the Financial Services (Enterprise) industry: Forrester Research, Inc. (FORR) and Everi Holdings Inc. (EVRI) with an A (Strong Buy) rating and South Plains Financial, Inc. (SPFI) with a B (Buy) rating.
SOFI shares fell $6.05 (-100.00%) in premarket trading Monday. Year-to-date, SOFI has declined -61.73%, versus a -18.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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