What Bulls and Bears May Be Getting Wrong about SOFI Stock

Key Points

• SOFI stock is down sharply despite delivering a mostly solid earnings report. 
• Weak revenue guidance and high short interest give the bears the upper hand in keeping SOFI stock under pressure.
• The company’s digital-only business model has been expensive, but much of that investment is paid, which could lead to more robust growth in coming quarters.  

SoFi Technologies Inc. NASDAQ: SOFI posted solid first quarter numbers and raised its full-year 2024 guidance. But you wouldn't know that by looking at SOFI stock. After its quarterly earnings report, the fintech company's stock is down 8.3% in early trading. 

What immediately comes to mind is the 18% short interest on SOFI stock. It's already down 23% in 2024, so it wouldn't take much for short sellers to get the upper hand. That appears to be part of what's happening here. Despite what was otherwise a strong report, SoFi did guide for lower revenue in the coming quarter, and sellers are latching on to the words "transitional year" that were used in the report.  

However, since the market opened, SOFI stock is up about 2% from a low of $7.01 as of this writing. That lends credence to SoFi supporters who can view the sell-off as being overdone. This is a polarizing stock and will likely remain that way until there is clarity about which camp is "more right" or perhaps "less wrong" when it comes to SOFI stock.  

What Did the Report Say? 

SoFI reported topline revenue of $581 million, which was 26% higher year-over-year (YOY). The company also notched its second consecutive profitable quarter. The two cents in earnings per share (EPS) was just under a penny higher than the forecast.  

Furthermore, the company reported that revenue from its financial services and tech platform segment was up 54%. This segment was 42% of SoFi's consolidated adjusted net revenues. And the company guided higher for the full year. SoFi now projects adjusted net revenue between $2.39 billion to $2.43 billion, higher than the $2.365 billion to $2.405 billion it previously forecasted. It also guided higher earnings of 8 to 9 cents per share, above the previous guidance of 7 to 8 cents. Both numbers, at the low end, align with analysts' estimates. 

However, the company's guidance was lower for the current quarter. Revenue of $555 million to $565 million is less than the $581 million analysts expected. Investors can interpret this item in the report however they want to see the company. On the one hand, revenue would be sharply lower than the prior quarter. On the other hand, it would be approximately 13% higher YOY on the low end.  

Is SoFi Just a Bank? 

That's the bearish argument that's been hanging over SoFi for some time. The company exploded into the national consciousness as a preferred student loan provider. This helped the company capture the Gen-Z demographic, but that turned into a double-edged sword in 2020 when the federal government issued a moratorium on student loan repayments.  

The company is still trying to recover from that. But in the meantime, SoFi received its banking charter and is adding new customers. 

In the last quarter alone, it reportedly added nearly 622K new members, with deposits growing from $18.6 billion at the end of 2023 to $21.6 billion at the end of the first quarter. However, bears will say that's not enough growth for a stock trading at about 79x forward earnings, even with the upwardly revised SoFi forecast.  

The Growth is Almost Paid For 

Bank stocks, even of the fintech variety, do not have a wide moat. However, SoFi's business model still has the possibility to set it apart. The company operates as a digital-only bank. Digital applications, by themselves, are not that exciting. Virtually all brick-and-mortar banks utilize digital applications to remove friction between themselves and their customers. And critics of Sofi will point out that consumers can get more competitive interest rates at some of these banks. 

However, SoFi bulls will point out that because the company does not have the overhead that comes with brick-and-mortar locations, it doesn't have to allocate as many resources to acquiring customers. That will, in theory, allow SoFi to use its capital for faster and more efficient innovation.  

So far, that growth has come at a cost. But as two straight profitable quarters show, much of that initial growth is paid for. Plus, management is forecasting ongoing profitability through at least 2026. 

SOFI Stock is a Hold 

Analysts haven't issued their opinions on SoFi's earnings as of this writing. However, prior to earnings, the SoFi Technologies analyst ratings on MarketBeat forecast a 27% upside for SOFI stock. But that will be mainly on the retail investor to achieve. SOFI stock only has about 38% institutional ownership.  

That could be a heavy lift. For now, a key for SOFI bulls will be to hold $7 as a level of support. If it falls beneath that, and with such high short interest, there's not much to prevent it from going back down to around $5.