Why this SoFi bull says skeptics are misunderstanding the stock


SoFi Technologies Inc. shares have slid 23% since the company posted earnings at the start of the month, and one bull thinks they’ve taken an unfair beating.

Mizuho’s Dan Dolev defended SoFi

in a late Monday note to clients, taking the view that bears on the name misunderstand the company’s decision not to sell personal loans in the first quarter. Skeptics worry that the company was unable to sell these loans, but Dolev said he and his team “see this differently.”

“We believe the correct reasoning is that SOFI is able to earn ~6.4% annualized yield on holding its personal loans, which is more attractive than selling them at ~5%,” he wrote.

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Another bearish point is that SoFi’s move to hold more loans in the current climate could prompt regulators to ask the company for a more conservative approach to its accounting, potentially by contemplating a switch to CECL (current expected credit losses) accounting. Such a dynamic, posited by a Wedbush analyst in a Monday downgrade of SoFi’s stock, “would in turn result in revenue headwinds,” Dolev wrote, but he doubts the scenario will happen.

“We argue that this is not even a possibility since regulators require that once you elect fair market value accounting you maintain it through either the sale or life of the loan, even if you hold it to maturity,” Dolev wrote.

See also: SoFi’s stock is poised to benefit from ‘powerful demographic shift,’ a new bull says

He’s also unconcerned about a risk factor from SoFi’s latest 10-Q that could be spooking some on Wall Street. SoFi disclosed that if its “current net losses continue for the foreseeable future and we are not able to achieve GAAP net income profitability in 2023 as currently expected,” it may have to raise additional debt or equity capital, “which may not be at favorable terms when compared to previous financing transactions.”

Dolev said that SoFi has had some version of that risk factor in its filings dating back to its public debut, though the company tweaked the language this time around to mention GAAP profits.

“We believe SOFI included this portion to emphasize its focus on achieving GAAP profitability by the fourth quarter,” he wrote.


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