Brokerage Gets Bullish on SoFi after the Massive Crash

2022 has been tough for fintech companies. Large fintech companies like Block and PayPal, as well as newly listed names like Affirm and SoFi, have crashed in 2022. Meanwhile, after the massive crash amid recession and slowdown fears, Mizuho has turned bullish on SoFi.

SoFi went public last year through a reverse with Social Capital Hedosophia Holdings IV (IPOE). The SPAC was sponsored by Chamath Palihapitiya, who has earned his reputation as the “king of SPACs. However, amid the sell-off in newly listed companies, SoFi also fell below the SPAC IPO price. Notably, all of the companies that went public through a reverse merger with SPACs backed by Palihapitiya have now fallen below the IPO price. Amid the poor market sentiments towards SPACs, two of Palihapitiya’s SPACs are still hunting for markets.

SoFi lowered its 2022 guidance

Along with the broader economic turmoil, President Joe Biden’s decision to extend the student loan moratorium has also taken a hit on SoFi. The student loan refinancing business has taken a hit amid the continued moratorium extensions. Markets now expect another extension before the current moratorium expires next month.

SoFi had to lower its 2022 guidance amid the student loan moratorium extension. However, it again raised the guidance after strong Q1 2022 performance, The company now expects to post revenues between $1.505-$1.510 billion in 2022. It expects the adjusted EBITDA between $100-$105 million in the year. Notably, the company has posted positive adjusted EBITDA for seven straight quarters.

Bank charter

In January, SOFI received permission to acquire Golden Pacific Bancorp and become a bank holding company. The bank charter is a key growth driver and would help it increase its profitability on a sustainable basis. At the end of March, it had $1.25 billion in deposits.

Commenting on the Q1 2022 earnings, Anthony Noto, SoFi’s CEO said, “we delivered another quarter of great results, with record adjusted net revenue up 49% year-over-year, a seventh consecutive quarter of positive adjusted EBITDA and continued robust growth in members, products and cross-buy.”

He added, “These strong results, which we achieved despite volatile markets and the changing political, fiscal and economic
landscape, demonstrate how our strategy of building a full suite of differentiated products and services has created a uniquely diversified business that can not only endure, but outperform across market cycle.”

Analysts on SoFi stock

Many analysts see cross-sell as a key opportunity for SoFi. The company added 408,000 members in the first quarter of 2022 which took its total members to 3.9 million. It has 5.9 million products on its platform and has an opportunity to cross-sell to existing as well as new customers.

Mizuho is bullish on SoFi stock and believes that the company can withstand a recession better than other fintech companies. Analyst Dan Dolev said, “SOFI is now more similar to a bank than a pure-play FinTech and therefore we now reach our valuation based on a sum-of-the-parts weighted average terminal margin, which we believe better reflects the long-term margin potential for SOFI’s three business segments.”

Dolev believes that SoFi benefits from the “best of both worlds” as “being a bank helps keep funding costs low … having the allure of a branded, next-gen FinTech creates a powerful funnel for low customer acquisition costs [and] high long-term value customers.”

Fintech industry

SoFi’s top line is growing at a fast pace and it expects its revenues to increase 43% annually between 2020 and 2025. The company expects its revenues to rise to $3.67 billion by 2025 and is forecasting EBITDA margins at 32% that year. SoFi is also making its offering better and has increased the trading timings on its stock trading platform. Notably, many are now calling upon the SEC to increase the trading window on stocks to 24 hours to bring it at par with cryptos that trade throughout the day.

Notably, while several fintech companies are witnessing a growth slowdown, SoFi’s growth has been largely intact. In the first quarter of 2022, its new member adds were the third highest in history.

Piper Sandler sees earnings moving higher in the second quarter

In May, Piper Sandler had also upgraded the stock to overweight. It said, “We acknowledge there will be some headwinds due to rising rates, but the market is over-discounting SOFI with the company poised to show a significant ramp in EBITDA in 2H22 and into 2023.” Analyst Kevin Berker added, “The combination of rapid growth in deposits, the expiration of the student loan moratorium, and revenue growth in the financial services segment should lead to significant earnings momentum throughout 2023 and 2024.”

The brokerage believes that the expiration of the student loan moratorium could add between $20-$30 million to SoFi’s adjusted EBITDA. However, President Biden is looking at measures to fix the broken US student loan system and many Democratic party colleagues are calling upon the president to cancel student loans.

SoFi stock is down 58% this year despite bouncing back from its all-time lows and has a 52-week trading range of $4.82-$24.65.