SoFi Stock Off 6%, Falls on Downgrade

SoFi Technologies' stock took a hit on Thursday, falling as much as 7% after analysts at KBW downgraded the stock to "underperform" due to concerns over its lofty valuation and ambitious financial targets. The downgrade reflects the challenges and higher expectations startups like SoFi face as they transition into mature financial services providers. A strong economy, lower interest rates, and the company's "success driving better scale and profitability... justifies shifting our investment thesis towards a more long-term view of what a mature SoFi looks like," the brokerage said. However, the stock's valuation has become overstretched across a wide matrix of multiples, and KBW's price target of $8 is nearly half its last closing price, indicating a significant potential downside for the stock.



SoFi's long-term target for a 20%-30% return on tangible common equity (ROTCE) will be "tough to achieve," the brokerage added. KBW's downgrade comes on the heels of a recent rally driven by investor optimism and lower interest rates. While KBW slightly increased its price target, it expressed concerns about SOFI's lofty valuation, deeming its long-term earnings potential insufficient to justify the current stock price. The brokerage concluded that the current risk-reward profile for SOFI investors leans heavily toward potential losses.



According to Benzinga Pro data, SoFi's stock was last trading at $14.68 and is heading towards a fourth consecutive session of losses, if current levels hold. The company shares rose 59.59% in 2024, outperforming the Invesco QQQQ Trust ETF QQQ, which rose by 26.99%, according to Benzinga Pro data. SoFi has a consensus price target of $9.98 per share based on the ratings of 26 analysts. The highest price target out of all the analysts tracked by Benzinga is $16 apiece issued by JPMorgan as of Dec 2, 2024. The lowest target price is $3 per share issued by Wedbush on April 30, 2024. The average price target of $13.67 apiece between Morgan Stanley, B of A Securities, and JPMorgan implies an 11.14% downside for SoFi.



SoFi Technologies reported financial results today for its first quarter ended March 31, 2024, with adjusted net revenue of $581 million, representing 26% year-over-year growth. The company delivered adjusted EBITDA of $144 million, a 25% margin, representing 91% year-over-year growth. This equates to a 57% incremental adjusted EBITDA margin, with all three segments profitable on a contribution basis. At the same time, SoFi further strengthened its balance sheet, growing tangible book value by $608 million, ending the quarter at $4.1 billion and $3.92 of tangible book value per share up 16% sequentially.



Anthony Noto, CEO of SoFi Technologies, Inc., commented: "Our first quarter was an exceptionally strong start to 2024, demonstrating significant momentum as we responsibly grow revenue and diversify toward our Financial Services and Tech Platform segments, sustain profitability, reinforce our balance sheet, and grow our member base. We delivered adjusted net revenue of $581 million, representing 26% year-over-year growth. Financial Services and Tech Platform segment revenue combined grew 54% and represented a record 42% of consolidated adjusted net revenue, offsetting flat Lending segment revenue given a more conservative approach in light of macroeconomic uncertainty."

In conclusion, SoFi Technologies' stock price decline following KBW's downgrade reflects the challenges and higher expectations startups like SoFi face as they transition into mature financial services providers. The company's lofty valuation and ambitious financial targets have raised concerns among analysts, leading to a significant potential downside for the stock. Despite the recent setback, SoFi's strong first quarter performance and long-term growth prospects may attract investors seeking exposure to the digital financial services sector.