Cutting SoFi as ‘Misleading’ Report Continues to Weight on Share Price
On Wednesday morning, SoFi Technologies ($SOFI) released the firm’s second quarter financial results. For the period ended June 30, SOFI posted a GAAP EPS of $0.12 on revenue of $1.206 billion. While both numbers beat Wall Street’s expectations, that top-line print was good for year-over-year growth of 40%. The firm also provided forward-looking guidance that, at least for revenue, beat expectations.
The initial knee-jerk market reaction to what appears to be a pretty solid quarter and a pretty decent outlook is not positive. One would have to think that perhaps SOFI would have to absolutely crush the numbers in order to impress after short-seller Muddy Waters Research released a rather scathing-looking report back in mid-March. That report accused SOFI of manipulative accounting practices.
As a result, the stock, at last glance, is now down 39.6% year to date and down 51.7% from its November high. SoFi has dismissed those claims as “factually inaccurate” and termed them as “misleading.” The report apparently continues to act as dead weight on the stock’s performance.
The CEO
CEO Anthony Noto, who is someone regular readers know that I have a great deal of confidence in, commented in the press release:
“2026 is shaping up to be a defining year, and our second quarter results mark a clear inflection point for SoFi. Despite continued market uncertainty, our business model continues to prove its durability. We grew members 35% year-over-year and added a record 2-.2 million products, a 42% increase.
Noto added: “For the first time, we added twice as many products as members, a major milestone that underscores the trust members place in SoFi and the power of our ‘everything app.’ Products like SoFi Plus and SoFi Coach are deepening member relationships and increasing lifetime value, while continued innovation across our consumer and enterprise platforms is expanding the value we deliver to members and clients.”
Operations
For the quarter, SOFI generated net revenue of $1.219 billion (+43%). The firm adjusted net revenue down to $1.206 billion (+40%). This adjustment primarily impacts the Lending segment. The firm states that there are non-cash charges that are not realized nor are indicative of core operations. Therefore, these charges do not impact the cash available to fund operations. Makes sense. This produced an adjusted net income attributable to shareholders of $160.459 million (+64%). This works out to an adjusted EPS of $0.12. The firm’s GAAP EPS also works out to $0.12 per fully diluted share. Hence, there is nothing here that I find to be fishy. At least not in the statement of operations. No, I don’t know everything.
Segment Performance
Financial Services generated net revenue of $466.278 million (+29%), producing a contribution profit of $212.676 million (+13%) as contribution margin dropped from 52% to 46%. Net interest income was up 29%. Non-interest income was up 28%.
Technology Platform generated net revenue of $84.505 million (-23%), producing a contribution profit of $11.772 million (-65%) as contribution margin dropped from 30% to 14%.
Lending generated net revenue of $724.798 million (+63%), producing a contribution profit of $399.033 million (+63%) as contribution margin improved to 56% from 55%. Net interest income was up 54%. Non-interest income was up 114%.
Guidance
For the full fiscal year, SOFI is now projecting adjusting net revenue of $4.75 billion to $4.85 billion, taking the low end of the range above the $4.7 billion that Wall Street was looking for. The firm sees this producing an adjusted net income of $825 million, leading to an adjusted EPS of $0.60. Wall Street was looking for $0.60, which is probably being seen as a disappointment this morning.
Opinion
OK, This is going to hurt. I still like SOFI, but my faith in this stock and this CEO is hurting all of you if you are in the name with me. No, I am not going to get out of SOFI in my other portfolios. In fact, I may add if it gets hit a little too hard later on Wednesday. That said, this portfolio, again, has a cash problem and SOFI is moving further below its 200-day SMA after failing at its 50-day SMA and 21-day EMA. I need to reduce this portfolio’s exposure to SOFI.
My double-bottom pattern of bullish reversal may still work, but it sure has taken a turn for the worse. The Sarge-folio can wait for that reversal to blossom and can afford to take a hit if I am ultimately proven wrong. This portfolio does not have that kind of tolerance for risk. I, therefore, will take the steps I need to, in order to make SOFI a less significant part of this particular book.
Tuesday’s Intentions vs Actual Trades
No trades intended or executed.
Wednesday’s Intentions
Sell 50 shares of SOFI at or close to the last sale of $15.14. This will leave a long position of 100 shares.
Purchase one August 20 $20 SOFI call below Tuesday night’s closing price of $0.27 to exit that position. This hedge has done its job and protected the equity position, keeping our overall net position in SOFI near the flat line.
Current Positions
Long 200 shares of ($ALTO) at $5.3611. Target price: $8. Last sale: $4.45.
Long 80 shares of ($EVLV) at $5.8959. Target price: $8.50. Last sale: $5.57.
Long 40 shares of ($INSG) at $7.7563. Target price: $11. Last sale: $6.78.
Long 100 shares of ($OCUL) at $8.3569. Target price: $11. Last sale: $8.55.
Short one OCUL $11 September 18 call at $1.65. Last sale: $0.65.
Long 250 shares of ($ONDS) at $8.4266. Target price: $14. Last sale: $7.85.
Long 40 shares of ($PL) at $25.3973. Target price: $46. Last sale: $20.55.
Long 4 shares of ($RKLB) at $66.505. Target price: $98. Last sale: $63.27.
Long 100 shares of ($RXT) at $4.886. No target price. Last sale: $3.88.
Long 150 shares of SOFI at $15.994. Target price: $24. Last sale: $15.14.
Short one SOFI August 21 $20 call at $1.02. Last sale: $0.27.
Long 30 shares of ($SWBI) at $15.74. Target price: $19. Last sale: $14.68.
Long 100 shares of VELO at $12.4561. Target price: $18. Last sale: $9.53.
Cash: $115.88.
Portfolio Value: $9,569.33, -4.3% from inception on March 24.
At the time of publication, Guilfoyle was long ALTO, EVLV, INSG, OCUL, ONDS, PL, RKLB, RXT, SOFI, SWBI and VELO.
