Has SoFi’s Stock Price Bottomed Or Will It Drop Further? (NASDAQ:SOFI)

SoFi Technologies Acquires Technisys SA For $1.1 Billion

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Elevator Pitch

I rate SoFi Technologies, Inc.’s (NASDAQ:SOFI) shares as a Hold.

In my previous April 7, 2022 update for SOFI, I evaluated the pros and cons associated with an investment in SoFi Technologies. SOFI’s shares have continued to trend downwards since my prior article, with its stock price down by -35.3% as compared to a milder -15.0% correction for the S&P 500. SoFi Technologies’ sustained stock price weakness has prompted me to provide an update on the recent developments for the company in this article.

My analysis suggests that SOFI’s stock price could potentially drop further, but the extent of the future decline should be limited by the fact that the stock’s current valuations aren’t demanding after the continued fall in the company’s share price for months.

SOFI Stock Key Metrics

Before I discuss SOFI’s share price performance, I will first analyze the company’s key metrics as disclosed in its most recent Q1 2022 financial results announced on May 10, 2022.

On the surface, SoFi Technologies’ Q1 2022 performance was good.

The company’s non-GAAP adjusted net revenue expanded by +49% YoY from $216 million in the first quarter of 2021 to $322 million in the recent quarter. SOFI’s Q1 2022 top line was +13% higher than Wall Street’s consensus adjusted revenue forecast of $284 million. SOFI’s EBITDA also rose by +110% YoY to $8.7 billion in Q1 2022, which exceeded the company’s earlier first-quarter EBITDA guidance in the $0-5 million range.

However, there are also certain negatives associated with SOFI’s first-quarter results.

Firstly, the YoY growth in the company’s number of members moderated from +87% YoY in Q4 2021 to +70% YoY for Q1 2022.

Secondly, SoFi Technologies’ student loan volume contracted by approximately -34% QoQ from almost $1.5 billion in the fourth quarter of 2021 to around $984 million in the most recent quarter.

Thirdly, SOFI’s Q2 2022 management guidance was below the market’s expectations. The mid-point of SoFi Technologies’ guidance pointed to the company generating $335 million of revenue and $10 million in adjusted EBITDA for the second quarter. In comparison, the sell-side’s consensus Q2 2022 top line and EBITDA projections prior to the Q1 results release were higher at $345 million and $23 million, respectively as per S&P Capital IQ data.

In conclusion, this was a mixed quarter for SOFI, and I think there are factors which contributed to the stock’s poor share price performance in recent months which I touch on in the next section.

What Happened To SoFi Stock?

SoFi Technologies’ stock price decreased by a significant -35.3% after my earlier article was published on April 7, 2022. I think this happened to SOFI’s shares because of two key issues.

One key issue is the student loan moratorium extension.

In the previous article for SOFI, I cautioned that a con of investing in SoFi Technologies is that “the federal student loan moratorium might potentially be deferred again.” The student loan moratorium had already been extended from May 1, 2022 to August 31, 2022, which led SoFi Technologies to lower its full-year FY 2022 EBITDA guidance by -44% from $180 million to $100 million.

Looking ahead, SoFi Technologies highlighted in its Q1 2022 results media release issued on May 10, 2022 that its “adjusted full year financial guidance assumes that the student loan moratorium will not in fact end during the course of 2022.” In other words, the company acknowledged that the student loan moratorium is likely to be extended again to 2023 based on its assessment.

Another issue that was a drag on SOFI’s share price performance in recent months is SoftBank (OTCPK:SFTBY) (OTCPK:SFTBF) selling its shares in SoFi Technologies.

According to a May 17, 2022 Seeking Alpha News article, Softbank’s holdings in SOFI was reduced from 117.75 million shares as of end-2021 to 95.28 million as of end-Q1 2022. Based on S&P Capital IQ’s share ownership data, Softbank remains SoFi Technologies’ largest shareholder with a 10.4% equity interest as of March 31, 2022.

On April 6, 2022, SOFI announced that “SoftBank’s Michel Combes and Carlos Medeiro” plan to leave the company’s board following the annual shareholders’ meeting on July 12, 2022. It is natural to be concerned if Softbank has the intention to further reduce its holdings in SOFI going forward. Investor worries relating to this have been another factor that drove SoFi Technologies’ share price down in recent weeks.

In the next two sections of the article, I try to determine if SOFI’s stock price has bottomed out based on both technical analysis and fundamental analysis.

Is SoFi Stock Oversold?

From a technical analysis’ perspective, SoFi isn’t oversold. SOFI’s Relative Strength Index or RSI was 47.34 as of July 6, 2022. As a rule of thumb, a stock’s RSI has to drop to 30 or below for the stock to be considered as oversold, and SOFI doesn’t meet this criteria.

Has SOFI’s Stock Price Bottomed Out?

In terms of fundamental analysis, SOFI currently trades at 3.26 times consensus forward next twelve months’ price-to-sales as per S&P Capital IQ valuation data, which is just around +13% higher than its trough price-to-sales multiple of 2.88 times registered on May 10, 2022. Shortly after its June 1, 2021 listing, SoFi Technologies was valued by the market at a peak price-to-sales multiple of 17.4 times on June 8, 2021.

But I don’t think SOFI’s stock price has bottomed out yet. SOFI is expected to stay loss-making at the EBIT and net profit levels for FY 2022 and FY 2023, and only turn profitable by FY 2024 according to the sell-side’s consensus financial forecasts sourced from S&P Capital IQ. SoFi Technologies’ revenue is also forecasted to slow from +73% in FY 2021 to +47% and +44% for FY 2022 and FY 2023, respectively.

In the current market climate, investors assign a hefty valuation discount to unprofitable companies which are witnessing slower top line growth, and it is likely that SoFi’s valuation multiples might still de-rate further, so there could be more downside for the company’s shares.

Where Is SoFi Stock Heading?

The outlook for SoFi is mixed, implying that the company’s shares could be range-bound, rather than heading in any specific direction.

On one hand, there are signs that SoFi’s bank charter, which was awarded to the company at the beginning of 2021, is starting to have a positive impact. SOFI revealed at the Piper Sandler Global Exchange & Brokerage Conference on June 9, 2022 that its deposits have grown from $1.5 billion in early-May to around $2.2 billion in early-June, and it noted that deposits have been “growing at around a $100 million per week.”

In my earlier February 18, 2022 article for SOFI, I emphasized that the company’s “ability to offer deposits” with a bank charter will “lower the company’s cost of funding in a significant way going forward.” SoFi Technologies had mentioned at its Q1 2022 earnings briefing that its average loan holding period has increased from three months to half a year due to the increase in deposits, which should drive faster NII (Net Interest Income) growth.

On the other hand, there is significant uncertainty when the student loan moratorium will expire. SoFi Technologies stressed at the early-June Piper Sandler Global Exchange & Brokerage Conference that “we don’t have any expectations for when it’s actually going to expire”, highlighting that “it’s an evolving situation with new news and hypotheses every single day.”

In my opinion, one can’t rule out the possibility of a worst case scenario materializing that the student loan moratorium is extended to 2024 when the next presidential election happens.

Is SOFI Stock A Buy, Sell, or Hold?

I rate SOFI stock as a Hold. Considering technical and fundamental indicators and the company’s business outlook, I see SoFi Technologies as a Hold, rather than a Buy or Sell.

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