Time To Exit
Online consumer finances platform Sofi (SOFI: $5.30) released its first quarter results early this week, reporting $330 million in revenues, up 68% YoY, compared to $196 million a year ago. The company posted a loss of $110 million, or $0.14 per share, against a loss of $178 million, or $1.61.
Despite beating analyst estimates on top and bottom lines, and a raise in guidance figures for the second quarter and the full year, the stock tanked following the results. This can mainly be attributed to the accidental early release of the figures due to a human error, which caused the stock to halt trading for nearly three hours; an unpardonable offense in light of recent market conditions.
Sofi’s business and fundamentals remain as robust as ever, adding 408,000 new members during the quarter alone, up 70% on a YoY basis, bringing the total to 3.9 million, followed by 690,000 in new product, ending with nearly 5.9 million total products across its massive catalog of financial products, an increase of 84% YoY.
Apart from this, the company continues to lose money, and as we’ve seen over the course of the past few weeks, the market has lost all patience when it comes to companies that are losing money. With even profitable peers like PayPal and Upstart being obliterated due to a slowdown in growth, we expect Sofi Technologies to be a lot more fragile, especially with the steady rise in macro headwinds in recent months.
We love the company but can't fight the market mood. It truly takes results that are better than "better than perfection" to get any kind of traction on Wall Street right now. These are staggering numbers and extremely cheap at barely 2X 2023 sales targets, but mean nothing right now. It would take something monumental for Sofi to get out of this rut. Until that happens, there's no urgency in buying or even holding on.
Of course, one could make the argument of adding more at this level. But that's for investors with real conviction and an eye on the future. For now, the Sofi balance sheet looks a little stressed ($500 million in cash against $4.2 billion of debt) and it's time to look toward our own cash reserves. With this in mind, we are removing this stock from our portfolio. The company has great potential and is doing great things. The stock, sadly, is not.