SoFi So Fine?

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SPACs were all the rage in 2020 and the beginning of 2021. Well-known figures in finance, like Chamath Palihapitiya and Cathie Wood. They even attracted mainstream celebrities like Shaq, Jay-Z, and Martha Stewart. 

However, they’ve since fallen on hard times. With many now looking like they won’t survive. 

One of the most popular former SPACs has been SoFi Technologies (SOFI), a fintech tech firm in the financial services business. 

The stock generated a lot of buzz with its latest quarterly results, sending shares and searches by financial pros skyrocketing.

Yet, shares down more than 50% year-to-date. However,the firm continues to add millions of people on its platform. 

Is this a classic buy-the-dip moment for SOFI? Or a stock that should be avoided at all costs?

Check out our analysis below…

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SoFi’s Business

SoFi Technologies, Inc. is an online financial services company catering mainly to retail customers. 

The firm operates through three segments, Lending, Technology Platform, and Financial Services. 

SOFI customers can save, invest, and borrow through its platform. In addition, they offer debt consolidation services, home loans, personal loans, and student loan refinancing. 

It also offers banking, insurance, estate planning, credit cards, investing for stocks, and crypto. 

On August 9th, the firm announced it created a Web 3 ETF, and Smart Energy ETF.  

The company was founded 11 years ago but continues to show impressive signs of growth. It added 4.3 million members in Q2 2022, an increase of 69% from the end of 2021’s second quarter. 

Financials

SOFI has shown phenomenal growth in revenues over the last couple years. The firm saw its revenues spike to $984.87 million in 2021 from $565.53 million in 2020. Its revenue (ttm) stands at $1.22 billion. 

However, its net income is negative, and not improving. In 2020, net income landed was -$224 million, and -$483 million in 2021. 

To make matters worse, its operating cash flow(ttm) is massive at -$3.39 billion. That means the company is burning cash. In fact, it hasn’t generated positive operating cash flow since 2018.

Unsurprisingly, SOFI has total debt of $3.91 billion, and $707.3 million in total cash(ttm), while boasting a market cap of $7.05 billion. 

While the company did report GAAP and adjusted net revenue for the second quarter in 2022, it has some work to do before reaching profitability. 

The firm’s current ratio is 2.83x, which means it has enough liquidity to cover its short-term liabilities. 

Valuation

SOFI is a valuation nightmare.    

The firm has a negative EPS. Furthermore, its price-to-sales ratio of 5.54x is just dreadful. Its P/E Non-GAAP (FY2) is -61.63x, which is simply laughable.  For example, Lending Club (LC), has a market cap nearly 5x as small as SOFI, but they have nearly the same revenue. Also, LC is also cash-flow positive and trades at P/E Non-GAAP (ttm) 10.87x. 

Profitability

One thing investors can’t be upset about is SoFi’s gross profit margin of 76.3%. However, things turn ugly after that. The firm has a negative net income margin of -28.46%, and a negative return on equity of -6.76%

Growth

SOFI has been growing at an attractive pace, 52.7% (YoY). But so have some of its competitors. For example, LC revenue growth is 109.66%, and Upstart (UPST) is 250.88%

Our Opinion – 1/10

SOFI is a former SPAC, which received a lot of buzz thanks to the endorsement and backing of Chamath Palihapitiya. It has enjoyed “meme stock” status. It’s an overvalued financial services company that isn’t profitable. That’s why 19% of the float is short the stock.

Meanwhile, Softbank recently sold 12 million shares of their stake.  While SOFI can be good for a quick trade. It is not a company we would invest in at this time.