SoFi: The Rise And Fall Of Fintech's Golden Boy

This market has been brutal. Nowhere has this been highlighted more than for previously high flying fintech company SoFi (NASDAQ:SOFI) which saw its stock price cut in half from its all-time high and then cut in half again. Overall, the stockis down 70.9% from its 52-week high, a material fall for a company once described as being at the intersection of growth and alpha. Why did this happen? And what comes next? The collapse of SoFi did not happen in isolation. It was part of a broader historic market pullback that has now left the early 2020 pandemic crash in its rearview.

In hindsight, pre-revenue companies trading at multi-billion valuations should have been a cause for pause and concern. But SoFi was different. Indeed, revenue was ramping across its multiple business verticals as it continued to execute on its flywheel strategy in the period following its go-public transition at an$8.7 billionvaluation. This strategy has seen SoFi create an integrated platform that offers multiple financial products to its customers. This ensures SoFi is able to tap into multiple total addressable markets from banking to stock trading to insurance.

This should ensure the wave of digitization that swept the world on the back of the great financial crisis continues to be a macro trend driving revenue growth in the quarters and years ahead. The continued digitization of traditional banking and financial services across America and the broader developed world also forms a tenet of this trend.

The Financials Are Still Strong

SoFi, with revenue up, a banking charter, and a $1.1 billion acquisition now trades on a lower valuation than the winter of 2021, when it announced it would go public. At a current value of $6.65 billion, this is a nearly 25% discount.

The company last released earnings for its fiscal 2022 first quarter which saw revenue come in at $321.73 million, a 48.9% year-over-year increase and a $37.74 million beat on consensus estimates. This came on the back of 408,000 new members added during the quarter, a 70% increase from the comparable year-ago quarter.

Total members have now grown to reach a new record of 3.9 million as new products during the quarter grew by 689,000 to 5.9 million, an 84% year-over-year increase.

Adjusted EBITDA for the quarter was also positive at $9 million, a 125% increase from the year-ago period. This was the seventh consecutive quarter of positive adjusted EBITDA and was also a sequential increase of 80%. SoFi ended the quarter with cash and equivalents of $1.3 billion, a significant cushion when compared to its market cap.

The company again revised its fiscal 2022 revenue guidance. This was an upward revision to between $1.505 billion to $1.510 billion from $1.470 billion. This constant revision of guidance has been a result of the deteriorating conditions for SoFi's student refinancing division which has faced a prolonged headwind from the constant federal extensions of the student loan moratorium. Going into an election year, management should have been more prudent with their initial guidance. This would have prevented two sets of revenue figures from being provided in the same year.

A Victim Of A Brutal Bear Market

SoFi is one of many victims of this brutal bear market that somehow feels like it is still in its early stages despite multiple stocks being almost down 90% from their all-time highs. Inflation is still rearing its head with energy and other core commodities seemingly making new daily highs on the back of a global supply shortage and the war in Ukraine.

Against this carnage, SoFi bulls should focus on the long-term thesis. This is based on the company building a membership experience and a full suite of financial products that leverage the financial services productivity loop. In this, SoFi builds trust and a relationship in its first product to drive success in the next. This should see the company realize a higher customer lifetime value against lower customer acquisition costs. Aggregated with the banking charter, this will form a competitive advantage and the base for profits and free cash flow generation.

The selling pressure on SoFi has been vicious. The bulls have capitulated, fully replaced with extreme dread as the specter of a recession haunts an already embattled stock market. Should things get better in the future I'd like to name my next SoFi article the rise, fall and rise of SoFi. The company will navigate the short-term headwinds posed by the constant student loan moratorium extensions and the broader headwinds posed by inflation and a contracting economy. Whilst there is no more truck to back up on my end, I continue to add to my position as the good times will come once again.

Source: seeking alpha