Despite robust results, Fintech personal finance company SoFi Technologies Inc. (NASDAQ: SOFI) stock has been losing credibility with investors. The company reported strong Q1 2023 earnings and revenues while raising its full-year 2023 top and bottom line estimates. This prompted Wedbush to downgrade shares to Underperform with a $2.50 price target on May 15, 2023. Two weeks before the downgrade on May 2, 2023, Wedbush downgraded shares to Neutral from Outperform with a price target of $5 from $8.

Wedbush Double Downgrades

With two consecutive downgrades in the same month by Wedbush dropping its price target from $8 to $5 to $2.50, shares dropped from a high of $6.54 to a low of $4.45 in May. Wedbush analyst David Chiaverini commented that SoFi is nearing a tipping point on the fee income from loan origination and sales. He stated, "Capital levels may be overstated using fair value accounting, and we believe SOFI may look to raise capital this year to support growth." Its 10-Q filing states that SoFi may consider an equity raise if GAAP profitability can’t be achieved in 2023.

Questioning SoFi’s Capital Levels

Chiaverini pointed out that they don't expect SoFi to change its accounting methodology or reduce its fair market assumptions. Chiaverini applied the CECL accounting model used by competitor The LendingClub Co. (NYSE: LC) would result in a valuation that's lower by (60%). This could prompt regulators to intervene, forcing SoFi to operate under "a more conservative capital requirement framework". This also results from recent regional bank failures causing regulatory scrutiny on capital ratios while stress testing intensifies.

The SoFi Ecosystem

It's worth noting that while LendingClub and SoFi offer loan products ranging from student loans to auto, personal and business loans, SoFi offers a broader range of financial services to its generational customers. They offer FDIC-insured banking products like CDs, money markets, and checking and savings accounts. SoFi also offers investment products and services, including stocks, ETFs, robo-advisors and live financial advisors. It offers credit cards as well as checking and savings accounts. SoFi also offers retirement plans, including IRAs, HSAs and 401(k) plans. It also offers discounts and perks for insurance, travel and other expenses. SoFi is a complete one-stop shop for all things financial, catering to high-income millennials. SoFi competes with other loan platforms, including Ally Financial Inc. (NYSE: ALLY), Upstart Holdings (NASDAQ: UPST), and LendingClub for loans. SoFi’s membership grew 46.2% to 5.656 million in Q1 2023.

Still Growing Like Gangbusters

On May 1, 2023, SoFi reported its Q1 2023 adjusted earnings-per-share (EPS) loss of (-$0.05), beating consensus analyst estimates for a loss of (-$0.09) by $0.04. Total revenues rose 43.1% YoY to $460.2 million versus $436.78 million consensus analyst estimates. SoFi added 660K new products, up 46.1% YoY bringing a total of 8.554 million products. This means 660K service products were added to customer accounts in the quarter. Lending products rose 24% to 1.4 million. Financial services products grew 51% YoY to 7.1 million.

Raising the Bar

SoFi adjusted revenue guidance for fiscal Q2 2023 to come between $470 million and $480 million versus $436.78 million consensus analyst estimates. SoFi raised its fiscal full-year 2023 revenue outlook of $1.96 billion to $2.02 billion versus $1.97 consensus analyst estimates. Annual adjusted net revenue growth is expected between 27% to 31%. Full-year adjusted EBITDA is between $268 million to $298 million, from earlier guidance of $260 million to $280 million. Adjusted EBITDA margin is expected to be around 14%. Positive quarterly GAAP net income is expected by Q4 2023, and a 20% incremental GAAP net income margin for the entire year.

Mizuho Reiterates Buy Rating

On May 16, 2023, Mizuho Securities reaffirmed its Buy rating on SoFi shares. Analyst Dan Dolev emphatically defended SoFi, stating that bears are mathematically and intellectually wrong about SoFi. Bears wrongly assumed that the lack of loans sold in Q1 2023 meant they could not sell loans. However, he believes SoFi can earn a 6.4% annualized yield just by holding personal loans, which is better than selling them at 5%. In retort to SOFI having to take a current-expected-credit-loss (CECL) provision, Dolev pointed out that regulators don't allow switching between fair market accounting and cost accounting. Its liquidity disclosure is nothing new, as it was included in its S-1 before the IPO. SoFi Technologies analyst ratings and price targets can be found on MarketBeat.

Here’s What the Charts Say

The weekly candlestick chart for SOFI illustrates the broad one-year-long weekly rectangle trading range from an upper trendline resistance of $8.04 to a lower flat bottom trendline at $4.24. Shares triggered a market structure low (MSL) breakout through $4.77 in January 2023, staging a rally through the upper trendline, briefly peaking at $8.24. The weekly market structure high (MSH) sell triggered the breakdown through $6.64 as shares collapsed to a low of $4.45 on the Mizuho double downgrade after its Q1 2023 earnings. The weekly stochastic has fallen and stalled just above the 20-band. The weekly 20-period exponential moving average (EMA) resistance is $5.65, followed by the 50-period weekly MA resistance at $5.72. Pullback support levels are $4.77 weekly MSL trigger, $4.45, $4.24 and $4.00.