3 More Reasons Why Sofi Technologies’ Struggles Will Likely Continue

I’ve been bearish onSofi Technologies(NASDAQ:SOFI$:SoFi Technologies Inc.(SOFI)$ )for many months. And, like most of my bearish picks in the last year, SOFI stock has indeed struggled. In fact, over the past one year, the name has tumbled a huge 50%.

Now, with the company facing three relatively new hurdles and my core bearish thesis on it still very much intact, I think shares of SOFI have much further to fall. Additionally, despite its huge declines, its valuation remains quite high. That’s definitely not helping SOFI stock’s outlook.

All in all, it looks like this is a name to avoid. Here are three recent issues the company is facing right now.

SOFI Stock: Giving Up on Crypto

The first issue with SOFI stock has to do with cryptocurrency. Specifically, some recent news reports indicate that, as a condition of being recognized as a bank by the U.S. government, Sofi has agreed to stop having any crypto dealings. Crypto news websiteCoinDeskreportsthat the company’s approval depended on it refraining from “any crypto-asset activities or services.”

What’s particularly relevant for SOFI stock here, however, is that the company had previously facilitated crypto trades. In fact, in the third quarter, its Invest revenuesoareda humungous 197% year-over-year (YOY) to $1.23 million.

Sofi does not appear to report how much revenue it obtains from crypto investments specifically. However, some clues suggest it could be a great deal. For instance, since the company has not existed very long (founded in 2011) and specializes in college loans, its customers probably tend to be young. Those who invest in cryptocurrencies tend to be young as well.

Since Sofi’s total net revenue in Q3 was $277 million, $1.23 million may not seem to be a great deal of money. However, crypto trading is probably still a high-margin activity for Sofi because it’s highly automated.

Let’s say that the loss of crypto trading reduces Sofi’s quarterly EBITDA by $800,000. In Q3, its EBITDA (excluding certain items) was $10.26 million. As such, a decline of $800,000 would have represented a drag of nearly 8% on the company’s Q3 adjusted EBITDA. A possible 8% EBITDA decline is a big deal for Wall Street and, consequently, important for SOFI stock.

Loan Demand Looks Poised to Fall

That’s issue number one. But there are more problems when it comes to SOFI stock. One such problem has to do with those aforementioned college loans. Since the pandemic began, college attendance has dropped significantly. On Jan. 13,NPRreportedthe following:

“More than 1 million fewer students are enrolled in college now than before the pandemic began. According to new data released Thursday, U.S. colleges and universities saw a drop of nearly 500,000 undergraduate students in the fall of 2021, continuing a historic decline that began the previous fall.”

This decline could weigh meaningfully on Sofi’s college loan business. Meanwhile, demand for its other loans — including refinancing, mortgages and personal loans — could be hurt by rising interest rates. As fellowInvestorPlacecontributor Josh Enomoto recently explained, in light of the elevated rates,“consumers and entrepreneurs may be unwilling to borrow as much money.”

That may be particularly true for Sofi’s customer base. The companytargetsmillennials, for instance, many of whom are likely to have lower incomes and less savings than older consumers.

Wall Street Is Not Thrilled with Fintech, Unprofitability

Finally for SOFI stock, there’s the issue of Wall Street and its current view of fintechs and unprofitable firms.

For starters, many fintech companies have not done very well at all in the last few months. I noted the following in arecent articleonBlock(NYSE:SQ$:Block(SQ)$ ):

“Fintech stocks have been hammered over the past six months, with the Global X FinTech ETF (NASDAQ: FINX$:Global X FinTech Thematic ETF(FINX)$ ) falling close to 30%.”

What’s more, Wall Street is not very enamored with companies that are deeply in the red. Sofi Technologies certainly falls into this category. For example, the company’s 2020 operating income came in at-$313.4 million, worse than the -$237.5 million it reported in 2019. More recently, the situation hasn’t improved. In the 12 months that ended in September 2021, its operating income was -$428.7 million.

The Bottom Line on SOFI Stock

All told, adding to the issues that I’ve outlined above, I’m sticking with my core thesis on Sofi. The thesis? That its app isnot meaningfully differentiatedfrom the offerings of competitors. Specifically, Zelle— the app that multiple large banks utilize — provides many of the functions of Sofi Money. Meanwhile, many platforms have similar services to Sofi Invest.

On top of this, SOFI stock has an enterprise value-sales ratio ofover 18, which is still quite elevated. Given all of these points, I continue to recommend that investors sell shares.