SoFi Technologies, a prominent fintech company, recently released its first-quarter financial report, which offered several encouraging insights. However, despite surpassing quarterly estimates and raising its full-year forecast, the response from Wall Street was tepid.
Following the earnings announcement, SoFi’s stock experienced a 4.3% decline on Tuesday, coupled with a notable 10% drop the preceding day. The market’s subdued reaction was primarily attributed to the company’s guidance for the current quarter, which fell short of analysts’ expectations.
During the earnings call, SoFi’s management provided additional context, disclosing that the company had executed a sale of $62.5 million worth of late-stage delinquent personal loans in the first quarter. Furthermore, the company reported a decline in its annualized personal loan charge-off rate, which decreased to 3.45% from 4.02% in the previous quarter, factoring in the delinquency sale.
While these developments appeared positive on the surface, analysts from Citi, who maintain a Buy rating on SoFi shares with a price target of $11, expressed reservations. They noted that while the reported net charge-off ratio showed a sequential decline, it would likely have been higher, potentially exceeding 5%, without the sale of delinquent loans.
Similarly, analysts from J.P. Morgan, who rate SoFi shares at Neutral, emphasized lingering uncertainties. They pointed to questions surrounding the impact of the loan sale on adjusted EBITDA and continued scrutiny regarding the company’s fair value assumptions, alluding to a prior debate over fair-value accounting practices that had previously affected the stock’s performance.
Offering a broader perspective, Timothy Switzer from Keefe, Bruyette & Woods expressed concerns about the implied net charge-off rate exceeding 5% in Q1. Switzer underscored the importance of SoFi demonstrating improved growth trends throughout 2024 relative to the first quarter, particularly given the premium valuation of the company’s stock.
In summary, while SoFi’s first-quarter report showcased several positive aspects, investor sentiment was dampened by lingering concerns surrounding loan sales, credit performance, and growth trajectory. To regain investor confidence and sustain its valuation, SoFi will need to address these issues effectively while demonstrating a clear path towards continued growth and profitability.