sofi

SoFi (NYSE: SOFI) is trading higher in US premarket price action today after the company reported better than expected earnings in the second quarter of 2022 and also raised its guidance.

It went public through a reverse merger with a Chamath Palihapitiya-backed SPAC in 2021. However, like other de-SPACs, SoFi also trades below the IPO price of $10. Nonetheless, the drawdown in SoFi is much lower as compared to other de-SPACs. It is also the second-best performing stock among all the companies that merged with Palihapitiya-sponsored SPACs.

The earnings over the last two days have been good. Yesterday, Pinterest stock rose despite mixed earnings. Uber stock also rose as earnings shattered estimates and the ride-hailing and food delivery company reported its first-ever free cash flows since it went public in 2019.

Coming back to SoFi, it reported revenues of $362 million in the second quarter which were ahead of the $344 million that analysts were expecting. The company’s revenues increased 57% YoY. While several fintech companies are reporting a severe slowdown in growth, SoFi’s revenue growth has been impressive.

Notably, SoFi’s student loan refinancing business has been hit amid the continued moratorium extensions. In the earnings release, SoFi said that its student loan originations are only a quarter of pre-pandemic levels. Given the upcoming US midterm elections, the Biden administration is expected to extend the moratorium yet again.

SoFi posted an adjusted EBITDA of $20 million in the quarter which almost doubled YoY and exceeded analysts’ estimates. Its per-share loss of 12 cents was also below the 14 cents that analysts were expecting. The company has now reported a positive adjusted EBITDA for eight straight quarters.

SoFi Posts Better Than Expected Earnings

SoFi SEO Anthony Noto was upbeat after the earnings beat and said “We delivered another quarter of great results with robust growth in members, products, and cross-buy.” Notably, SoFi is a diversified fintech company offering diverse services like loans, investments, credit cards, and stock and crypto trading. The wide array of products means that it has several cross-sell opportunities to increase the wallet share from existing customers.

Noto added, “While the political, fiscal, and economic landscapes continue to shift around us, we have maintained strong and consistent momentum in our business.”

SoFi added 450,000 new members in the quarter which was a new record for the company. It ended the quarter with 4.3 million members, 69% higher than the second quarter of 2021. Earlier this year, SoFi received the bank charter which allows it to collect deposits from customers. It had $2.7 billion worth of customer deposits at the end of July.

The bank charter is margin accretive for the company as it ends its reliance on third-party banks. Commenting on the bank charter Noto said, “Our bank charter is enabling new flexibility that has proven even more valuable in light of the current macro environment, and the economic benefits are already starting to materialize and positively impact our operating and financial results.”

SoFi also raised its 2022 net revenue guidance to $1.508-1.513 billion from the previous range of $1.505-1.510 billion. While the guidance increase is not much it is encouraging considering the economic slowdown which has prompted several companies to lower their guidance. It also raised the full-year adjusted EBITDA guidance to $104-109 million from $100-105 million.

Mizuho Finds SoFi Stock Undervalued

In July, Mizuho said that SoFi stock looks undervalued as compared to companies like Mastercard, Visa, and PayPal. It advised buying the shares while lowering the target price from $9 to $7, a price level SoFi might breach today looking at the premarket price action.

Being a growth stock, SoFi has been negatively impacted by the rising interest rates. Valuations of growth companies have taken a hit amid the rising rates. While the Federal Reserve is expected to raise rates by another 75 basis points at its next meeting, bond markets seem to be anticipating an end to Fed’s rate hike cycle. The yields on 10-year Treasury bonds have fallen even as the Fed is raising rates, implying that markets now see Fed pivoting toward a more dovish monetary policy.

Meanwhile, even as SoFi continues to grow its member count, Robinhood, which also went public in 2021, has lost millions of monthly active users since the second quarter of 2021. Its trading volumes have plummeted and the company has laid off employees twice in 2022 amid slowing growth.

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