SoFi Technologies: The Market Is Wrong About Convertible Notes Offering

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SoFi Technologies: The Market Is Wrong About Convertible Notes Offering

seekingalpha03-07

SummarySoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.It looks like the market overreacted since the deal is aimed to improve debt ...

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On March 5, the stock plunged by 15% in one day after news regarding plans to raise $750 million via convertible senior notes. For long-term investors like me, big selloffs like we have seen yesterday is an excellent opportunity to increase stake in this future superstar. The company continues demonstrating stellar dynamics in key financial and operating metrics, and I believe SOFI is poised to sustain its impressive business expansion trajectory. The valuation looks even more attractive after the recent dip, which makes me reiterate my \"Strong Buy\" rating for SOFI.Recent developmentsSOFI released its latest quarterly earnings on January 29, when the company topped revenue consensus estimates and met adjusted EPS forecasts. YoY revenue growth in Q4 accelerated to 34%, compared to a 27% growth in Q3. The adjusted EPS was positive for the first time in SOFI's history.SOFI latest quarterly earningsFor the full fiscal 2023 SOFI recorded a strong 35% revenue growth. The top-line strength enabled SOFI to expand its adjusted EBITDA margin from 9% to 21%. In absolute terms, the adjusted EBITDA tripled YoY from $143 to $432. For a financial services company, it is crucial to balance between delivering solid performance and sustaining a solid financial position. SOFI's management looks prudent from the capital allocation perspective since its balance sheet looks solid with ample cash and liquidity. In Q4, deposits [liabilities side] growth outnumbered loans [assets side] by almost two times, which is good for investors. Growing deposits faster than loans means SOFI increases the share of loans financed by deposits and needs to rely less on warehouse facilities. This means more efficient funding costs for SOFI, which will highly likely lead to improved profitability because deposits are cheaper for the company compared to warehouse facilities.SOFI's balance sheetI am emphasizing SOFI's sound balance sheet because it is the cornerstone for any financial institution to fuel sustainable growth and creating value for shareholders. The ability to drive customer base expansion is the second important factor for SOFI. From this perspective, the company demonstrates massive growth momentum, delivering a 44% YoY customers [\"members\"] growth.SOFI customer growthAnd the last but not least, crucial critical success factor for a financial services company is the range of products it offers. The broader product offerings a financial institution sells to customers, the higher the probability that it will be able to become a one-stop-shop for clients. This in turn will provide SOFI with exceptional cross-selling opportunities to drive revenue growth further. Apart from the potential to boost revenue via selling additional products to existing customers, it is also crucial to keep in mind that cross-selling also helps driving down customer acquisition costs. In terms of products offered, SOFI also demonstrated substantial expansion, which is a clear indication that the business is moving in right direction. The fact that the company added more products [695k] in Q4 compared to the number of members increase [585k], means that SOFI successfully exercises its cross-selling potential. According to the latest 10-K report, SOFI defines \"total products\" as the aggregate number of lending and financial services products that customers have selected on the platform since the inception through the reporting date, whether or not the customers are still registered for such products.SoFi number of products dynamicsAs we can see, SOFI demonstrates strength across all three critical success factors which I have defined. Now let me move on to the discussion of the latest catalyst which was perceived very negatively by the market, which led to a big selloff on March 5th.The company proposed a $750 million convertible senior notes offering due 2029 which was absorbed by the market with massive fear and a 15% single-day stock price decline. The fact that investors will likely be diluted as a result of the deal seems to be major reason for a selloff. I might have agreed that such an offering was a disaster if the company had been desperately seeking for ways to raise finance to survive from a crisis. However, as we have seen above, it is not the case for SOFI. According to the official press-release, proceeds from the deal will be used to redeem its 12.5% Series 1 Preferred Stocks and other higher-cost indebtedness. That said, this information is in reality positive for the company because it will highly likely replace more expensive debt instruments with a cheaper one. Of course, the details regarding the interest rates and initial conversion rate for the new offering were not revealed yet, but so far SOFI's management's capital allocation moves were sound. Therefore, I expect the deal to be beneficial for shareholders over the long term.SOFI stock valuation updateSOFI tanked by 27% year-to-date, substantially lagging the broader U.S. stock market. The picture is better from the past 12 months perspective with a 9% stock price increase. The current market cap is around $8 billion, which is far below all-time highs.SOFI stock price chartValuation of SOFI is tricky because the company is still not profitable from the GAAP net income perspective and there is not much direct public fintech rivals with comparable scale and revenue growth to compare with. Since SOFI is a bank, I think that comparing its forward valuation ratios with the industry leaders will be fair. Apparently, players like JPMorgan Chase (JPM) or Bank of America (BAC) have vibrant brands and vast customer base, and these banks scales and profitability are far beyond SOFI. On the other hand, it is highly likely that traditional banking is stagnating and fintech is emerging, which allows SOFI to far outpace giants in terms of revenue growth pace.SOFI vs JPM vs BAC revenue growthAll factors together are likely to offset each other, which makes multiples comparison between SOFI, JPM and BAC fair. As we can see from SOFI's 12.12 forward FY 2027 P/E ratio, the projected massive revenue growth is not actually priced in. JPM's revenue is expected to stagnate over the next three years, but its 2027 P/E is projected higher than SOFI, which is expected by consensus to deliver almost 18% revenue CAGR over the same period.SOFI vs JPM vs BAC multiplesTo derive SOFI's 12-months target price, I will multiple a $0.23 FY 2025 EPS estimate by a P/E multiple. According to Lyn Alden, a fair P/E ratio for a company with annual revenue and EPS growth rate of 20% is 40+. Since SOFI's revenue CAGR projections are below 20% but far above 10%, I am using a 40 P/E with a 5% haircut, i.e., 38. Multiplying $0.23 by 38 gives me target price of $8.74. This is 20% higher than the last close, which means SOFI is very attractively valued after the selloff.Risks updateThe stock is highly volatile, the last 52-week range spanned from $4.45 to $11.70, which I consider to be a very wide corridor. As can be seen from the last year's stock price chart below, it is common for the stock to demonstrate big moves in either direction within very short timeframes. Therefore, investing in the stock if an investor has a short-term horizon is extremely risky and may resemble gambling. Despite the stock is likely to rebound fast after a big yesterday's drop, I insist that investment in SOFI is a bet on secular growth.SOFI last 12 months stock price volatilitySOFI is an apparent disruptor for the whole financial industry and has great chances to become an undisputed leader in the American fintech. However, it is crucial to remember that SOFI does not compete with young, ambitious fintech companies only. Instead, SOFI competes with almost five thousand insured commercial banks. Giants like JPM and BAC have hundreds of billions in assets, vast customer bases, and experienced well-paid teams which are unwilling to lose even tiny portions of their businesses to anyone. That said, SOFI shall be multiple steps ahead of competition in terms of the technological edge and convenience of its app compared to traditional banking.Bottom lineTo conclude, SOFI I reiterate a \"Strong Buy\" rating for SOFI. I like how the business performs across key operational and financial metrics and the management's prioritization of sustaining a healthy balance sheet with improved funding sourcing. The convertible bonds offering, which has led to a big sell-off looks like an excellent buying opportunity as the valuation became much more attractive after the stock plunged. It is highly likely that the market overreacted because the new potential convertible bonds deal is aimed to improve the structure of SOFI's debt.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":281737274257504,"gmtCreate":1709812025729,"gmtModify":1709812029158,"author":{"id":"3569473957254831","authorId":"3569473957254831","name":"iNkwiziTs","avatar":"https://static.tigerbbs.com/7cfab89f2382be8e231dff17c4383110","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":5,"crmLevelSwitch":1,"idStr":"3569473957254831","authorIdStr":"3569473957254831"},"htmlText":"I'm not a fan&nbsp;","listText":"I'm not a fan&nbsp;","text":"I'm not a fan","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/281737274257504","repostId":1176442504,"repostType":4,"repost":{"id":"1176442504","kind":"news","pubTimestamp":1709809683,"share":"https://ttm.financial/m/news/1176442504?lang=&edition=fundamental","pubTime":"2024-03-07 19:08","market":"us","language":"en","title":"SoFi Technologies: The Market Is Wrong About Convertible Notes Offering","url":"https://stock-news.laohu8.com/highlight/detail?id=1176442504","media":"seekingalpha","summary":"SummarySoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.It looks like the market overreacted since the deal is aimed to improve debt str","content":"<html><head></head><body><h2 id=\"id_3703289031\" style=\"text-align: left;\">Summary</h2><ul style=\"\"><li><p>SoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.</p></li><li><p>It looks like the market overreacted since the deal is aimed to improve debt structure of SoFi and replace new notes with instruments with higher interest rates.</p></li><li><p>The company continues demonstrating exceptional performance across all key metrics and SOFI stock&#39;s valuation is very attractive after the recent dip.</p></li></ul><h2 id=\"id_949794673\" style=\"text-align: left;\">SoFi Technologies investment thesis</h2><p style=\"text-align: left;\">My previous bullish thesis about SoFi Technologies is not aging well so far as the stock substantially lags behind the broader U.S. market. On March 5, the stock plunged by 15% in one day after news regarding plans to raise $750 million via convertible senior notes. For long-term investors like me, big selloffs like we have seen yesterday is an excellent opportunity to increase stake in this future superstar. The company continues demonstrating stellar dynamics in key financial and operating metrics, and I believe SOFI is poised to sustain its impressive business expansion trajectory. The valuation looks even more attractive after the recent dip, which makes me reiterate my &#34;Strong Buy&#34; rating for SOFI.</p><h2 id=\"id_2961273512\" style=\"text-align: left;\">Recent developments</h2><p style=\"text-align: left;\">SOFI released its latest quarterly earnings on January 29, when the company topped revenue consensus estimates and met adjusted EPS forecasts. YoY revenue growth in Q4 accelerated to 34%, compared to a 27% growth in Q3. The adjusted EPS was positive for the first time in SOFI&#39;s history.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/d9b0c41c82a90f2dcd61bc13b9620b17\" alt=\"SOFI latest quarterly earnings\" title=\"SOFI latest quarterly earnings\" tg-width=\"585\" tg-height=\"212\"/><span>SOFI latest quarterly earnings</span></p><p style=\"text-align: left;\">For the full fiscal 2023 SOFI recorded a strong 35% revenue growth. The top-line strength enabled SOFI to expand its adjusted EBITDA margin from 9% to 21%. In absolute terms, the adjusted EBITDA tripled YoY from $143 to $432. For a financial services company, it is crucial to balance between delivering solid performance and sustaining a solid financial position. SOFI&#39;s management looks prudent from the capital allocation perspective since its balance sheet looks solid with ample cash and liquidity. In Q4, deposits [liabilities side] growth outnumbered loans [assets side] by almost two times, which is good for investors. Growing deposits faster than loans means SOFI increases the share of loans financed by deposits and needs to rely less on warehouse facilities. This means more efficient funding costs for SOFI, which will highly likely lead to improved profitability because deposits are cheaper for the company compared to warehouse facilities.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/8171ca39967a29159c4db8b3ca3c61e1\" alt=\"SOFI&#39;s balance sheet\" title=\"SOFI&#39;s balance sheet\" tg-width=\"640\" tg-height=\"286\"/><span>SOFI&#39;s balance sheet</span></p><p style=\"text-align: left;\">I am emphasizing SOFI&#39;s sound balance sheet because it is the cornerstone for any financial institution to fuel sustainable growth and creating value for shareholders. The ability to drive customer base expansion is the second important factor for SOFI. From this perspective, the company demonstrates massive growth momentum, delivering a 44% YoY customers [&#34;members&#34;] growth.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/7977d60c6448baaab06088867d39e317\" alt=\"SOFI customer growth\" title=\"SOFI customer growth\" tg-width=\"640\" tg-height=\"292\"/><span>SOFI customer growth</span></p><p style=\"text-align: left;\">And the last but not least, crucial critical success factor for a financial services company is the range of products it offers. The broader product offerings a financial institution sells to customers, the higher the probability that it will be able to become a one-stop-shop for clients. This in turn will provide SOFI with exceptional cross-selling opportunities to drive revenue growth further. Apart from the potential to boost revenue via selling additional products to existing customers, it is also crucial to keep in mind that cross-selling also helps driving down customer acquisition costs. In terms of products offered, SOFI also demonstrated substantial expansion, which is a clear indication that the business is moving in right direction. The fact that the company added more products [695k] in Q4 compared to the number of members increase [585k], means that SOFI successfully exercises its cross-selling potential. According to the latest 10-K report, SOFI defines &#34;total products&#34; as the aggregate number of lending and financial services products that customers have selected on the platform since the inception through the reporting date, whether or not the customers are still registered for such products.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/336aa0973f39302389be440feb92dc20\" alt=\"SoFi number of products dynamics\" title=\"SoFi number of products dynamics\" tg-width=\"640\" tg-height=\"292\"/><span>SoFi number of products dynamics</span></p><p style=\"text-align: left;\">As we can see, SOFI demonstrates strength across all three critical success factors which I have defined. Now let me move on to the discussion of the latest catalyst which was perceived very negatively by the market, which led to a big selloff on March 5th.</p><p style=\"text-align: left;\">The company proposed a $750 million convertible senior notes offering due 2029 which was absorbed by the market with massive fear and a 15% single-day stock price decline. The fact that investors will likely be diluted as a result of the deal seems to be major reason for a selloff. I might have agreed that such an offering was a disaster if the company had been desperately seeking for ways to raise finance to survive from a crisis. However, as we have seen above, it is not the case for SOFI. According to the official press-release, proceeds from the deal will be used to redeem its 12.5% Series 1 Preferred Stocks and other higher-cost indebtedness. That said, this information is in reality positive for the company because it will highly likely replace more expensive debt instruments with a cheaper one. Of course, the details regarding the interest rates and initial conversion rate for the new offering were not revealed yet, but so far SOFI&#39;s management&#39;s capital allocation moves were sound. Therefore, I expect the deal to be beneficial for shareholders over the long term.</p><h2 id=\"id_301632307\" style=\"text-align: left;\">SOFI stock valuation update</h2><p style=\"text-align: left;\">SOFI tanked by 27% year-to-date, substantially lagging the broader U.S. stock market. The picture is better from the past 12 months perspective with a 9% stock price increase. The current market cap is around $8 billion, which is far below all-time highs.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/6e7310ff2da7c0e878f52ca58693e74e\" alt=\"SOFI stock price chart\" title=\"SOFI stock price chart\" tg-width=\"640\" tg-height=\"280\"/><span>SOFI stock price chart</span></p><p style=\"text-align: left;\">Valuation of SOFI is tricky because the company is still not profitable from the GAAP net income perspective and there is not much direct public fintech rivals with comparable scale and revenue growth to compare with. Since SOFI is a bank, I think that comparing its forward valuation ratios with the industry leaders will be fair. Apparently, players like JPMorgan Chase (JPM) or Bank of America (BAC) have vibrant brands and vast customer base, and these banks scales and profitability are far beyond SOFI. On the other hand, it is highly likely that traditional banking is stagnating and fintech is emerging, which allows SOFI to far outpace giants in terms of revenue growth pace.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/f7e8afe00b6e20ea886c0a98ede805f0\" alt=\"SOFI vs JPM vs BAC revenue growth\" title=\"SOFI vs JPM vs BAC revenue growth\" tg-width=\"640\" tg-height=\"159\"/><span>SOFI vs JPM vs BAC revenue growth</span></p><p style=\"text-align: left;\">All factors together are likely to offset each other, which makes multiples comparison between SOFI, JPM and BAC fair. As we can see from SOFI&#39;s 12.12 forward FY 2027 P/E ratio, the projected massive revenue growth is not actually priced in. JPM&#39;s revenue is expected to stagnate over the next three years, but its 2027 P/E is projected higher than SOFI, which is expected by consensus to deliver almost 18% revenue CAGR over the same period.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/9d3e6ab8d0e5d07a1b4073f0fc9c2281\" alt=\"SOFI vs JPM vs BAC multiples\" title=\"SOFI vs JPM vs BAC multiples\" tg-width=\"640\" tg-height=\"180\"/><span>SOFI vs JPM vs BAC multiples</span></p><p style=\"text-align: left;\">To derive SOFI&#39;s 12-months target price, I will multiple a $0.23 FY 2025 EPS estimate by a P/E multiple. According to Lyn Alden, a fair P/E ratio for a company with annual revenue and EPS growth rate of 20% is 40+. Since SOFI&#39;s revenue CAGR projections are below 20% but far above 10%, I am using a 40 P/E with a 5% haircut, i.e., 38. Multiplying $0.23 by 38 gives me target price of $8.74. This is 20% higher than the last close, which means SOFI is very attractively valued after the selloff.</p><h2 id=\"id_75610443\" style=\"text-align: left;\">Risks update</h2><p style=\"text-align: left;\">The stock is highly volatile, the last 52-week range spanned from $4.45 to $11.70, which I consider to be a very wide corridor. As can be seen from the last year&#39;s stock price chart below, it is common for the stock to demonstrate big moves in either direction within very short timeframes. Therefore, investing in the stock if an investor has a short-term horizon is extremely risky and may resemble gambling. Despite the stock is likely to rebound fast after a big yesterday&#39;s drop, I insist that investment in SOFI is a bet on secular growth.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/7fe01a1461776e6c6cbafb9650f79187\" alt=\"SOFI last 12 months stock price volatility\" title=\"SOFI last 12 months stock price volatility\" tg-width=\"640\" tg-height=\"281\"/><span>SOFI last 12 months stock price volatility</span></p><p style=\"text-align: left;\">SOFI is an apparent disruptor for the whole financial industry and has great chances to become an undisputed leader in the American fintech. However, it is crucial to remember that SOFI does not compete with young, ambitious fintech companies only. Instead, SOFI competes with almost five thousand insured commercial banks. Giants like JPM and BAC have hundreds of billions in assets, vast customer bases, and experienced well-paid teams which are unwilling to lose even tiny portions of their businesses to anyone. That said, SOFI shall be multiple steps ahead of competition in terms of the technological edge and convenience of its app compared to traditional banking.</p><h2 id=\"id_597730413\" style=\"text-align: left;\">Bottom line</h2><p style=\"text-align: left;\">To conclude, SOFI I reiterate a &#34;Strong Buy&#34; rating for SOFI. I like how the business performs across key operational and financial metrics and the management&#39;s prioritization of sustaining a healthy balance sheet with improved funding sourcing. The convertible bonds offering, which has led to a big sell-off looks like an excellent buying opportunity as the valuation became much more attractive after the stock plunged. It is highly likely that the market overreacted because the new potential convertible bonds deal is aimed to improve the structure of SOFI&#39;s debt.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>SoFi Technologies: The Market Is Wrong About Convertible Notes Offering</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSoFi Technologies: The Market Is Wrong About Convertible Notes Offering\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-03-07 19:08 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4676247-sofi-technologies-market-wrong-convertible-notes-offering><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummarySoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.It looks like the market overreacted since the deal is aimed to improve debt ...</p>\n\n<a href=\"https://seekingalpha.com/article/4676247-sofi-technologies-market-wrong-convertible-notes-offering\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SOFI":"SoFi Technologies Inc."},"source_url":"https://seekingalpha.com/article/4676247-sofi-technologies-market-wrong-convertible-notes-offering","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1176442504","content_text":"SummarySoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.It looks like the market overreacted since the deal is aimed to improve debt structure of SoFi and replace new notes with instruments with higher interest rates.The company continues demonstrating exceptional performance across all key metrics and SOFI stock's valuation is very attractive after the recent dip.SoFi Technologies investment thesisMy previous bullish thesis about SoFi Technologies is not aging well so far as the stock substantially lags behind the broader U.S. market. On March 5, the stock plunged by 15% in one day after news regarding plans to raise $750 million via convertible senior notes. For long-term investors like me, big selloffs like we have seen yesterday is an excellent opportunity to increase stake in this future superstar. The company continues demonstrating stellar dynamics in key financial and operating metrics, and I believe SOFI is poised to sustain its impressive business expansion trajectory. The valuation looks even more attractive after the recent dip, which makes me reiterate my \"Strong Buy\" rating for SOFI.Recent developmentsSOFI released its latest quarterly earnings on January 29, when the company topped revenue consensus estimates and met adjusted EPS forecasts. YoY revenue growth in Q4 accelerated to 34%, compared to a 27% growth in Q3. The adjusted EPS was positive for the first time in SOFI's history.SOFI latest quarterly earningsFor the full fiscal 2023 SOFI recorded a strong 35% revenue growth. The top-line strength enabled SOFI to expand its adjusted EBITDA margin from 9% to 21%. In absolute terms, the adjusted EBITDA tripled YoY from $143 to $432. For a financial services company, it is crucial to balance between delivering solid performance and sustaining a solid financial position. SOFI's management looks prudent from the capital allocation perspective since its balance sheet looks solid with ample cash and liquidity. In Q4, deposits [liabilities side] growth outnumbered loans [assets side] by almost two times, which is good for investors. Growing deposits faster than loans means SOFI increases the share of loans financed by deposits and needs to rely less on warehouse facilities. This means more efficient funding costs for SOFI, which will highly likely lead to improved profitability because deposits are cheaper for the company compared to warehouse facilities.SOFI's balance sheetI am emphasizing SOFI's sound balance sheet because it is the cornerstone for any financial institution to fuel sustainable growth and creating value for shareholders. The ability to drive customer base expansion is the second important factor for SOFI. From this perspective, the company demonstrates massive growth momentum, delivering a 44% YoY customers [\"members\"] growth.SOFI customer growthAnd the last but not least, crucial critical success factor for a financial services company is the range of products it offers. The broader product offerings a financial institution sells to customers, the higher the probability that it will be able to become a one-stop-shop for clients. This in turn will provide SOFI with exceptional cross-selling opportunities to drive revenue growth further. Apart from the potential to boost revenue via selling additional products to existing customers, it is also crucial to keep in mind that cross-selling also helps driving down customer acquisition costs. In terms of products offered, SOFI also demonstrated substantial expansion, which is a clear indication that the business is moving in right direction. The fact that the company added more products [695k] in Q4 compared to the number of members increase [585k], means that SOFI successfully exercises its cross-selling potential. According to the latest 10-K report, SOFI defines \"total products\" as the aggregate number of lending and financial services products that customers have selected on the platform since the inception through the reporting date, whether or not the customers are still registered for such products.SoFi number of products dynamicsAs we can see, SOFI demonstrates strength across all three critical success factors which I have defined. Now let me move on to the discussion of the latest catalyst which was perceived very negatively by the market, which led to a big selloff on March 5th.The company proposed a $750 million convertible senior notes offering due 2029 which was absorbed by the market with massive fear and a 15% single-day stock price decline. The fact that investors will likely be diluted as a result of the deal seems to be major reason for a selloff. I might have agreed that such an offering was a disaster if the company had been desperately seeking for ways to raise finance to survive from a crisis. However, as we have seen above, it is not the case for SOFI. According to the official press-release, proceeds from the deal will be used to redeem its 12.5% Series 1 Preferred Stocks and other higher-cost indebtedness. That said, this information is in reality positive for the company because it will highly likely replace more expensive debt instruments with a cheaper one. Of course, the details regarding the interest rates and initial conversion rate for the new offering were not revealed yet, but so far SOFI's management's capital allocation moves were sound. Therefore, I expect the deal to be beneficial for shareholders over the long term.SOFI stock valuation updateSOFI tanked by 27% year-to-date, substantially lagging the broader U.S. stock market. The picture is better from the past 12 months perspective with a 9% stock price increase. The current market cap is around $8 billion, which is far below all-time highs.SOFI stock price chartValuation of SOFI is tricky because the company is still not profitable from the GAAP net income perspective and there is not much direct public fintech rivals with comparable scale and revenue growth to compare with. Since SOFI is a bank, I think that comparing its forward valuation ratios with the industry leaders will be fair. Apparently, players like JPMorgan Chase (JPM) or Bank of America (BAC) have vibrant brands and vast customer base, and these banks scales and profitability are far beyond SOFI. On the other hand, it is highly likely that traditional banking is stagnating and fintech is emerging, which allows SOFI to far outpace giants in terms of revenue growth pace.SOFI vs JPM vs BAC revenue growthAll factors together are likely to offset each other, which makes multiples comparison between SOFI, JPM and BAC fair. As we can see from SOFI's 12.12 forward FY 2027 P/E ratio, the projected massive revenue growth is not actually priced in. JPM's revenue is expected to stagnate over the next three years, but its 2027 P/E is projected higher than SOFI, which is expected by consensus to deliver almost 18% revenue CAGR over the same period.SOFI vs JPM vs BAC multiplesTo derive SOFI's 12-months target price, I will multiple a $0.23 FY 2025 EPS estimate by a P/E multiple. According to Lyn Alden, a fair P/E ratio for a company with annual revenue and EPS growth rate of 20% is 40+. Since SOFI's revenue CAGR projections are below 20% but far above 10%, I am using a 40 P/E with a 5% haircut, i.e., 38. Multiplying $0.23 by 38 gives me target price of $8.74. This is 20% higher than the last close, which means SOFI is very attractively valued after the selloff.Risks updateThe stock is highly volatile, the last 52-week range spanned from $4.45 to $11.70, which I consider to be a very wide corridor. As can be seen from the last year's stock price chart below, it is common for the stock to demonstrate big moves in either direction within very short timeframes. Therefore, investing in the stock if an investor has a short-term horizon is extremely risky and may resemble gambling. Despite the stock is likely to rebound fast after a big yesterday's drop, I insist that investment in SOFI is a bet on secular growth.SOFI last 12 months stock price volatilitySOFI is an apparent disruptor for the whole financial industry and has great chances to become an undisputed leader in the American fintech. However, it is crucial to remember that SOFI does not compete with young, ambitious fintech companies only. Instead, SOFI competes with almost five thousand insured commercial banks. Giants like JPM and BAC have hundreds of billions in assets, vast customer bases, and experienced well-paid teams which are unwilling to lose even tiny portions of their businesses to anyone. That said, SOFI shall be multiple steps ahead of competition in terms of the technological edge and convenience of its app compared to traditional banking.Bottom lineTo conclude, SOFI I reiterate a \"Strong Buy\" rating for SOFI. I like how the business performs across key operational and financial metrics and the management's prioritization of sustaining a healthy balance sheet with improved funding sourcing. The convertible bonds offering, which has led to a big sell-off looks like an excellent buying opportunity as the valuation became much more attractive after the stock plunged. It is highly likely that the market overreacted because the new potential convertible bonds deal is aimed to improve the structure of SOFI's debt.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":281736476692480,"gmtCreate":1709811829628,"gmtModify":1709811833334,"author":{"id":"3572847359523135","authorId":"3572847359523135","name":"ESPES","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3572847359523135","authorIdStr":"3572847359523135"},"htmlText":"F by nmrjgej","listText":"F by nmrjgej","text":"F by nmrjgej","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/281736476692480","repostId":1176442504,"repostType":2,"repost":{"id":"1176442504","kind":"news","pubTimestamp":1709809683,"share":"https://ttm.financial/m/news/1176442504?lang=&edition=fundamental","pubTime":"2024-03-07 19:08","market":"us","language":"en","title":"SoFi Technologies: The Market Is Wrong About Convertible Notes Offering","url":"https://stock-news.laohu8.com/highlight/detail?id=1176442504","media":"seekingalpha","summary":"SummarySoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.It looks like the market overreacted since the deal is aimed to improve debt str","content":"<html><head></head><body><h2 id=\"id_3703289031\" style=\"text-align: left;\">Summary</h2><ul style=\"\"><li><p>SoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.</p></li><li><p>It looks like the market overreacted since the deal is aimed to improve debt structure of SoFi and replace new notes with instruments with higher interest rates.</p></li><li><p>The company continues demonstrating exceptional performance across all key metrics and SOFI stock&#39;s valuation is very attractive after the recent dip.</p></li></ul><h2 id=\"id_949794673\" style=\"text-align: left;\">SoFi Technologies investment thesis</h2><p style=\"text-align: left;\">My previous bullish thesis about SoFi Technologies is not aging well so far as the stock substantially lags behind the broader U.S. market. On March 5, the stock plunged by 15% in one day after news regarding plans to raise $750 million via convertible senior notes. For long-term investors like me, big selloffs like we have seen yesterday is an excellent opportunity to increase stake in this future superstar. The company continues demonstrating stellar dynamics in key financial and operating metrics, and I believe SOFI is poised to sustain its impressive business expansion trajectory. The valuation looks even more attractive after the recent dip, which makes me reiterate my &#34;Strong Buy&#34; rating for SOFI.</p><h2 id=\"id_2961273512\" style=\"text-align: left;\">Recent developments</h2><p style=\"text-align: left;\">SOFI released its latest quarterly earnings on January 29, when the company topped revenue consensus estimates and met adjusted EPS forecasts. YoY revenue growth in Q4 accelerated to 34%, compared to a 27% growth in Q3. The adjusted EPS was positive for the first time in SOFI&#39;s history.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/d9b0c41c82a90f2dcd61bc13b9620b17\" alt=\"SOFI latest quarterly earnings\" title=\"SOFI latest quarterly earnings\" tg-width=\"585\" tg-height=\"212\"/><span>SOFI latest quarterly earnings</span></p><p style=\"text-align: left;\">For the full fiscal 2023 SOFI recorded a strong 35% revenue growth. The top-line strength enabled SOFI to expand its adjusted EBITDA margin from 9% to 21%. In absolute terms, the adjusted EBITDA tripled YoY from $143 to $432. For a financial services company, it is crucial to balance between delivering solid performance and sustaining a solid financial position. SOFI&#39;s management looks prudent from the capital allocation perspective since its balance sheet looks solid with ample cash and liquidity. In Q4, deposits [liabilities side] growth outnumbered loans [assets side] by almost two times, which is good for investors. Growing deposits faster than loans means SOFI increases the share of loans financed by deposits and needs to rely less on warehouse facilities. This means more efficient funding costs for SOFI, which will highly likely lead to improved profitability because deposits are cheaper for the company compared to warehouse facilities.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/8171ca39967a29159c4db8b3ca3c61e1\" alt=\"SOFI&#39;s balance sheet\" title=\"SOFI&#39;s balance sheet\" tg-width=\"640\" tg-height=\"286\"/><span>SOFI&#39;s balance sheet</span></p><p style=\"text-align: left;\">I am emphasizing SOFI&#39;s sound balance sheet because it is the cornerstone for any financial institution to fuel sustainable growth and creating value for shareholders. The ability to drive customer base expansion is the second important factor for SOFI. From this perspective, the company demonstrates massive growth momentum, delivering a 44% YoY customers [&#34;members&#34;] growth.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/7977d60c6448baaab06088867d39e317\" alt=\"SOFI customer growth\" title=\"SOFI customer growth\" tg-width=\"640\" tg-height=\"292\"/><span>SOFI customer growth</span></p><p style=\"text-align: left;\">And the last but not least, crucial critical success factor for a financial services company is the range of products it offers. The broader product offerings a financial institution sells to customers, the higher the probability that it will be able to become a one-stop-shop for clients. This in turn will provide SOFI with exceptional cross-selling opportunities to drive revenue growth further. Apart from the potential to boost revenue via selling additional products to existing customers, it is also crucial to keep in mind that cross-selling also helps driving down customer acquisition costs. In terms of products offered, SOFI also demonstrated substantial expansion, which is a clear indication that the business is moving in right direction. The fact that the company added more products [695k] in Q4 compared to the number of members increase [585k], means that SOFI successfully exercises its cross-selling potential. According to the latest 10-K report, SOFI defines &#34;total products&#34; as the aggregate number of lending and financial services products that customers have selected on the platform since the inception through the reporting date, whether or not the customers are still registered for such products.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/336aa0973f39302389be440feb92dc20\" alt=\"SoFi number of products dynamics\" title=\"SoFi number of products dynamics\" tg-width=\"640\" tg-height=\"292\"/><span>SoFi number of products dynamics</span></p><p style=\"text-align: left;\">As we can see, SOFI demonstrates strength across all three critical success factors which I have defined. Now let me move on to the discussion of the latest catalyst which was perceived very negatively by the market, which led to a big selloff on March 5th.</p><p style=\"text-align: left;\">The company proposed a $750 million convertible senior notes offering due 2029 which was absorbed by the market with massive fear and a 15% single-day stock price decline. The fact that investors will likely be diluted as a result of the deal seems to be major reason for a selloff. I might have agreed that such an offering was a disaster if the company had been desperately seeking for ways to raise finance to survive from a crisis. However, as we have seen above, it is not the case for SOFI. According to the official press-release, proceeds from the deal will be used to redeem its 12.5% Series 1 Preferred Stocks and other higher-cost indebtedness. That said, this information is in reality positive for the company because it will highly likely replace more expensive debt instruments with a cheaper one. Of course, the details regarding the interest rates and initial conversion rate for the new offering were not revealed yet, but so far SOFI&#39;s management&#39;s capital allocation moves were sound. Therefore, I expect the deal to be beneficial for shareholders over the long term.</p><h2 id=\"id_301632307\" style=\"text-align: left;\">SOFI stock valuation update</h2><p style=\"text-align: left;\">SOFI tanked by 27% year-to-date, substantially lagging the broader U.S. stock market. The picture is better from the past 12 months perspective with a 9% stock price increase. The current market cap is around $8 billion, which is far below all-time highs.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/6e7310ff2da7c0e878f52ca58693e74e\" alt=\"SOFI stock price chart\" title=\"SOFI stock price chart\" tg-width=\"640\" tg-height=\"280\"/><span>SOFI stock price chart</span></p><p style=\"text-align: left;\">Valuation of SOFI is tricky because the company is still not profitable from the GAAP net income perspective and there is not much direct public fintech rivals with comparable scale and revenue growth to compare with. Since SOFI is a bank, I think that comparing its forward valuation ratios with the industry leaders will be fair. Apparently, players like JPMorgan Chase (JPM) or Bank of America (BAC) have vibrant brands and vast customer base, and these banks scales and profitability are far beyond SOFI. On the other hand, it is highly likely that traditional banking is stagnating and fintech is emerging, which allows SOFI to far outpace giants in terms of revenue growth pace.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/f7e8afe00b6e20ea886c0a98ede805f0\" alt=\"SOFI vs JPM vs BAC revenue growth\" title=\"SOFI vs JPM vs BAC revenue growth\" tg-width=\"640\" tg-height=\"159\"/><span>SOFI vs JPM vs BAC revenue growth</span></p><p style=\"text-align: left;\">All factors together are likely to offset each other, which makes multiples comparison between SOFI, JPM and BAC fair. As we can see from SOFI&#39;s 12.12 forward FY 2027 P/E ratio, the projected massive revenue growth is not actually priced in. JPM&#39;s revenue is expected to stagnate over the next three years, but its 2027 P/E is projected higher than SOFI, which is expected by consensus to deliver almost 18% revenue CAGR over the same period.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/9d3e6ab8d0e5d07a1b4073f0fc9c2281\" alt=\"SOFI vs JPM vs BAC multiples\" title=\"SOFI vs JPM vs BAC multiples\" tg-width=\"640\" tg-height=\"180\"/><span>SOFI vs JPM vs BAC multiples</span></p><p style=\"text-align: left;\">To derive SOFI&#39;s 12-months target price, I will multiple a $0.23 FY 2025 EPS estimate by a P/E multiple. According to Lyn Alden, a fair P/E ratio for a company with annual revenue and EPS growth rate of 20% is 40+. Since SOFI&#39;s revenue CAGR projections are below 20% but far above 10%, I am using a 40 P/E with a 5% haircut, i.e., 38. Multiplying $0.23 by 38 gives me target price of $8.74. This is 20% higher than the last close, which means SOFI is very attractively valued after the selloff.</p><h2 id=\"id_75610443\" style=\"text-align: left;\">Risks update</h2><p style=\"text-align: left;\">The stock is highly volatile, the last 52-week range spanned from $4.45 to $11.70, which I consider to be a very wide corridor. As can be seen from the last year&#39;s stock price chart below, it is common for the stock to demonstrate big moves in either direction within very short timeframes. Therefore, investing in the stock if an investor has a short-term horizon is extremely risky and may resemble gambling. Despite the stock is likely to rebound fast after a big yesterday&#39;s drop, I insist that investment in SOFI is a bet on secular growth.</p><p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/7fe01a1461776e6c6cbafb9650f79187\" alt=\"SOFI last 12 months stock price volatility\" title=\"SOFI last 12 months stock price volatility\" tg-width=\"640\" tg-height=\"281\"/><span>SOFI last 12 months stock price volatility</span></p><p style=\"text-align: left;\">SOFI is an apparent disruptor for the whole financial industry and has great chances to become an undisputed leader in the American fintech. However, it is crucial to remember that SOFI does not compete with young, ambitious fintech companies only. Instead, SOFI competes with almost five thousand insured commercial banks. Giants like JPM and BAC have hundreds of billions in assets, vast customer bases, and experienced well-paid teams which are unwilling to lose even tiny portions of their businesses to anyone. That said, SOFI shall be multiple steps ahead of competition in terms of the technological edge and convenience of its app compared to traditional banking.</p><h2 id=\"id_597730413\" style=\"text-align: left;\">Bottom line</h2><p style=\"text-align: left;\">To conclude, SOFI I reiterate a &#34;Strong Buy&#34; rating for SOFI. I like how the business performs across key operational and financial metrics and the management&#39;s prioritization of sustaining a healthy balance sheet with improved funding sourcing. The convertible bonds offering, which has led to a big sell-off looks like an excellent buying opportunity as the valuation became much more attractive after the stock plunged. It is highly likely that the market overreacted because the new potential convertible bonds deal is aimed to improve the structure of SOFI&#39;s debt.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>SoFi Technologies: The Market Is Wrong About Convertible Notes Offering</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSoFi Technologies: The Market Is Wrong About Convertible Notes Offering\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-03-07 19:08 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4676247-sofi-technologies-market-wrong-convertible-notes-offering><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummarySoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.It looks like the market overreacted since the deal is aimed to improve debt ...</p>\n\n<a href=\"https://seekingalpha.com/article/4676247-sofi-technologies-market-wrong-convertible-notes-offering\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SOFI":"SoFi Technologies Inc."},"source_url":"https://seekingalpha.com/article/4676247-sofi-technologies-market-wrong-convertible-notes-offering","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1176442504","content_text":"SummarySoFi Technologies stock demonstrated a 15% plunge in one day after news regarding new convertible notes offering.It looks like the market overreacted since the deal is aimed to improve debt structure of SoFi and replace new notes with instruments with higher interest rates.The company continues demonstrating exceptional performance across all key metrics and SOFI stock's valuation is very attractive after the recent dip.SoFi Technologies investment thesisMy previous bullish thesis about SoFi Technologies is not aging well so far as the stock substantially lags behind the broader U.S. market. On March 5, the stock plunged by 15% in one day after news regarding plans to raise $750 million via convertible senior notes. For long-term investors like me, big selloffs like we have seen yesterday is an excellent opportunity to increase stake in this future superstar. The company continues demonstrating stellar dynamics in key financial and operating metrics, and I believe SOFI is poised to sustain its impressive business expansion trajectory. The valuation looks even more attractive after the recent dip, which makes me reiterate my \"Strong Buy\" rating for SOFI.Recent developmentsSOFI released its latest quarterly earnings on January 29, when the company topped revenue consensus estimates and met adjusted EPS forecasts. YoY revenue growth in Q4 accelerated to 34%, compared to a 27% growth in Q3. The adjusted EPS was positive for the first time in SOFI's history.SOFI latest quarterly earningsFor the full fiscal 2023 SOFI recorded a strong 35% revenue growth. The top-line strength enabled SOFI to expand its adjusted EBITDA margin from 9% to 21%. In absolute terms, the adjusted EBITDA tripled YoY from $143 to $432. For a financial services company, it is crucial to balance between delivering solid performance and sustaining a solid financial position. SOFI's management looks prudent from the capital allocation perspective since its balance sheet looks solid with ample cash and liquidity. In Q4, deposits [liabilities side] growth outnumbered loans [assets side] by almost two times, which is good for investors. Growing deposits faster than loans means SOFI increases the share of loans financed by deposits and needs to rely less on warehouse facilities. This means more efficient funding costs for SOFI, which will highly likely lead to improved profitability because deposits are cheaper for the company compared to warehouse facilities.SOFI's balance sheetI am emphasizing SOFI's sound balance sheet because it is the cornerstone for any financial institution to fuel sustainable growth and creating value for shareholders. The ability to drive customer base expansion is the second important factor for SOFI. From this perspective, the company demonstrates massive growth momentum, delivering a 44% YoY customers [\"members\"] growth.SOFI customer growthAnd the last but not least, crucial critical success factor for a financial services company is the range of products it offers. The broader product offerings a financial institution sells to customers, the higher the probability that it will be able to become a one-stop-shop for clients. This in turn will provide SOFI with exceptional cross-selling opportunities to drive revenue growth further. Apart from the potential to boost revenue via selling additional products to existing customers, it is also crucial to keep in mind that cross-selling also helps driving down customer acquisition costs. In terms of products offered, SOFI also demonstrated substantial expansion, which is a clear indication that the business is moving in right direction. The fact that the company added more products [695k] in Q4 compared to the number of members increase [585k], means that SOFI successfully exercises its cross-selling potential. According to the latest 10-K report, SOFI defines \"total products\" as the aggregate number of lending and financial services products that customers have selected on the platform since the inception through the reporting date, whether or not the customers are still registered for such products.SoFi number of products dynamicsAs we can see, SOFI demonstrates strength across all three critical success factors which I have defined. Now let me move on to the discussion of the latest catalyst which was perceived very negatively by the market, which led to a big selloff on March 5th.The company proposed a $750 million convertible senior notes offering due 2029 which was absorbed by the market with massive fear and a 15% single-day stock price decline. The fact that investors will likely be diluted as a result of the deal seems to be major reason for a selloff. I might have agreed that such an offering was a disaster if the company had been desperately seeking for ways to raise finance to survive from a crisis. However, as we have seen above, it is not the case for SOFI. According to the official press-release, proceeds from the deal will be used to redeem its 12.5% Series 1 Preferred Stocks and other higher-cost indebtedness. That said, this information is in reality positive for the company because it will highly likely replace more expensive debt instruments with a cheaper one. Of course, the details regarding the interest rates and initial conversion rate for the new offering were not revealed yet, but so far SOFI's management's capital allocation moves were sound. Therefore, I expect the deal to be beneficial for shareholders over the long term.SOFI stock valuation updateSOFI tanked by 27% year-to-date, substantially lagging the broader U.S. stock market. The picture is better from the past 12 months perspective with a 9% stock price increase. The current market cap is around $8 billion, which is far below all-time highs.SOFI stock price chartValuation of SOFI is tricky because the company is still not profitable from the GAAP net income perspective and there is not much direct public fintech rivals with comparable scale and revenue growth to compare with. Since SOFI is a bank, I think that comparing its forward valuation ratios with the industry leaders will be fair. Apparently, players like JPMorgan Chase (JPM) or Bank of America (BAC) have vibrant brands and vast customer base, and these banks scales and profitability are far beyond SOFI. On the other hand, it is highly likely that traditional banking is stagnating and fintech is emerging, which allows SOFI to far outpace giants in terms of revenue growth pace.SOFI vs JPM vs BAC revenue growthAll factors together are likely to offset each other, which makes multiples comparison between SOFI, JPM and BAC fair. As we can see from SOFI's 12.12 forward FY 2027 P/E ratio, the projected massive revenue growth is not actually priced in. JPM's revenue is expected to stagnate over the next three years, but its 2027 P/E is projected higher than SOFI, which is expected by consensus to deliver almost 18% revenue CAGR over the same period.SOFI vs JPM vs BAC multiplesTo derive SOFI's 12-months target price, I will multiple a $0.23 FY 2025 EPS estimate by a P/E multiple. According to Lyn Alden, a fair P/E ratio for a company with annual revenue and EPS growth rate of 20% is 40+. Since SOFI's revenue CAGR projections are below 20% but far above 10%, I am using a 40 P/E with a 5% haircut, i.e., 38. Multiplying $0.23 by 38 gives me target price of $8.74. This is 20% higher than the last close, which means SOFI is very attractively valued after the selloff.Risks updateThe stock is highly volatile, the last 52-week range spanned from $4.45 to $11.70, which I consider to be a very wide corridor. As can be seen from the last year's stock price chart below, it is common for the stock to demonstrate big moves in either direction within very short timeframes. Therefore, investing in the stock if an investor has a short-term horizon is extremely risky and may resemble gambling. Despite the stock is likely to rebound fast after a big yesterday's drop, I insist that investment in SOFI is a bet on secular growth.SOFI last 12 months stock price volatilitySOFI is an apparent disruptor for the whole financial industry and has great chances to become an undisputed leader in the American fintech. However, it is crucial to remember that SOFI does not compete with young, ambitious fintech companies only. Instead, SOFI competes with almost five thousand insured commercial banks. Giants like JPM and BAC have hundreds of billions in assets, vast customer bases, and experienced well-paid teams which are unwilling to lose even tiny portions of their businesses to anyone. That said, SOFI shall be multiple steps ahead of competition in terms of the technological edge and convenience of its app compared to traditional banking.Bottom lineTo conclude, SOFI I reiterate a \"Strong Buy\" rating for SOFI. I like how the business performs across key operational and financial metrics and the management's prioritization of sustaining a healthy balance sheet with improved funding sourcing. The convertible bonds offering, which has led to a big sell-off looks like an excellent buying opportunity as the valuation became much more attractive after the stock plunged. It is highly likely that the market overreacted because the new potential convertible bonds deal is aimed to improve the structure of SOFI's debt.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":17,"commentSize":2,"repostSize":2,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}