Wait for a Pullback to Buy SoFi Technologies
Long-term investors should consider buying SOFI stock after a potential decline
Financial technology startup SoFi Technologies (NASDAQ: SOFI ) went public as SOFI stock on Jun. 1 via a reverse-merger with a special purpose acquisition company (SPAC) called Social Capital Hedosophia Corp. V . As a result, SoFi raised $2.4 billion in cash proceeds to be used for further expansion strategies.
Commonly referred to as blank-check companies, SPACs have become extremely popular lately. Instead of going through a long and usually difficult initial public offering (IPO) process, a large number of private businesses have been raising capital and going public via merging with a SPAC.
Recent metrics suggest that 2020 has been a significant year for SPAC mergers, which “raised almost twice as much as they raised in the previous 10 years combined.” Now, this year has already beaten the 2020 figures. As of Jun. 8, some 333 mergers have been completed raising $105 billion stateside.
So, what should you know about this latest entry in the world of SPACs?
SOFI Stock: The Price Action
When it comes to SOFI stock, maybe it is best for us to start with this name’s recent price action.
On Jun. 1, SOFI closed the day at $22.65. The next day, it saw a high of $24.95. Since then, though, it has been a choppy ride and the shares have traded at a range between about $20 and $25. Today, the shares have dipped down to just below $19. Still, year-to-date (YTD), SOFI stock is up about 51% and has a market capitalization of $14.7 billion.
True, long-term investors would like to see the stock back at its record high of $28.26, which hit in early February while it was still trading under the IPOE ticker. However, given the recent increase in price, short-term profit-taking could be in the cards before a new leg can start.
How SoFi’s Quarterly Earnings Came
SoFi Technologies was founded in 2011 as a financial services company, initially for student loan financing. Since then, it has expanded its offerings to mortgages, personal loans and brokerage services. Basically, the fintech platform intends to be a one-stop shop for finances, operating just through its mobile app and website.
The company released first-quarter financial results in late May, days before the completion of its SPAC merger. Adjusted net revenue was $216 million, a 151% year-over-year (YOY) increase over Q1 2020 (Page 7). The company also announced positive EBITDA for the quarter as well as a $70 million improvement YOY.
Now, SoFi expects to continue its growth in regards to members, having managed a 110% YOY growth in Q1. For full-year 2021, the group expects new revenue of $980 million, up 58% from the realized $621 million in 2020. Overall, the Street has concurred that it was a good quarter.
One of the most promising things about SoFi, though, are its acquisitions. For example, last April, SoFi acquired the financial services application programming interface (API) and payments platform Galileo Financial Technologies for $1.2 billion. Galileo also works with the company’s competitors, including Robinhood, Chime and Revolut.
Plus, this March, SoFi also agreed to acquire a Californian community bank called Golden Pacific Bancorp (OTCMKTS: GPBI ) in order to bolster its goal of nabbing a national bank charter. This would support profitability, as borrowing costs would be lower.
Altogether, the coming quarters should see SOFI stock do quite well
The Bottom Line on SOFI Stock
The past year has seen a significant increase in digitalization for many sectors, including financial services. According to Research and Markets, the “Digital Banking Platform Market is expected to grow at a CAGR of 11.2% during the forecast period (2021 – 2026).”
As a result, we can expect digital platforms like this name to benefit from this growth. However, most of the near-term growth expectation has already been factored into SOFI stock shares. Therefore, interested investors might want to wait for a pullback to $18 — close to where it is today — for a higher margin of safety.
On top of this, though, investors who want to invest in fintech companies that are similar to SOFI might consider buying an exchange-traded fund (ETF) instead. These names give exposure to a broad portfolio of fintechs. Examples include:
- ARK Fintech Innovation ETF (NYSEARCA: ARKF )
- Ecofin Digital Payments Infrastructure Fund (NYSEARCA: TPAY )
- Global X FinTech ETF (NASDAQ: FINX )