Why Is SoFi CEO Buying So Much Stock? The tech-heavy Nasdaq has dropped more than 25 percent since the start of the year, and there is no end in sight. The index gave up all of its 2021 gains, and then some, and many individual tech stocks fared even worse.
Amazon is down more than 30 percent year-to-date, and Tesla lost nearly 40 percent of its value in 2022. Apple is down roughly 22 percent, and Meta (formerly Facebook) has declined almost 50 percent so far this year. Even the seemingly invincible Netflix is struggling – its stock is down approximately 70 percent.
A number of challenges came together at once to create an impossible environment for tech stocks to thrive. The combination of rising interest rates, increasing inflation, supply chain delays, semiconductor shortages, and the Russian invasion of Ukraine have destroyed consumer confidence and made investors anxious. Of course, the first thing anxious investors do is move from higher-risk assets to safer options.
In this case, investors have turned away from tech companies now that the extraordinary growth of the pandemic years has leveled off. Instead, they are choosing reliable industries like energy, consumer staples, and food/beverage. These industries tend to be relatively recession-proof, which makes them attractive at a time when many believe the economic pain will get worse before it gets better.
The thing about ditching growing tech companies for more reliable stocks is that investors who sell tech stocks now won’t be there for the recovery. Will tech stocks recover? Most assuredly, yes – and that’s why SoFi CEO Anthony Noto is buying up large amounts of his company’s stock.
How SoFi Got Started
SoFi is shorthand for Social Finance, which was the original concept behind this fintech company. In 2011, founders Ian Brady, Mike Cagney, James Finnigan, and Dan Macklin took a hard look at the student loan industry and decided that they could make borrowing for education easier and cheaper.
The idea was to remove the middleman from the student loan equation. Instead of going through traditional financial service companies, SoFi used a unique version of crowdfunding to collect capital from investors. SoFi distributed those funds to students in search of lower interest rate education loans.
The company took off, and soon SoFi was able to branch out. It began to offer additional lending services, including auto loan refinancing, mortgages, credit cards, and personal loans.
More recently, SoFi has moved into investing, and it now offers standard banking services like checking and savings accounts.
Everything is available through the company’s user-friendly online platform, along with tools and educational resources for all sorts of financial planning.
When Did SoFi Go Public?
SoFi didn’t start trading its stock on the Nasdaq until June 1, 2021, and when it went public, it didn’t follow the usual IPO process.
Instead, SoFi started trading publicly through a special purpose acquisition company (SPAC) merger, backed by none other than the billionaire venture capitalist Chamath Palihapitiya (net worth $1 billion).
Palihapitiya believed in SoFi because of its digital-native design. In other words, SoFi is only online – there are no brick-and-mortar branches, which means no buildings to buy, lease, maintain, and staff. That gives SoFi an edge over traditional banks that offer a similar menu of products and services. SoFi’s expenses are lower, so it can offer everything from checking accounts to mortgages without the fees and interest rates associated with traditional banks.
The concept appeals to younger consumers who are comfortable with mobile-first companies, including those offering financial products. SoFi plans to draw consumers in early, while they are students, then continue to meet their financial needs for a lifetime.
Will SoFi Stock Recover?
SoFi stock dropped, along with the rest of its tech peers, after the entire tech industry saw impressive highs in November 2021.
Year-to-date, SoFi stock is down by more than 60 percent, but SoFi CEO Anthony Noto’s confidence remains high.
Virtually every time SoFi stock goes down, he buys more, bringing his current stake in the company to 3,385,921 shares – a value of more than $22.5 million.
Noto’s year-to-date purchases of SoFi stock include the following:
March 10th – 15,873 shares at $9.44/share
March 14th – 19,042 shares at $7.85/share
March 16th – 17,375 shares at $8.62/share
May 19th – 13,500 shares at $7.79/share
May 24th – 37,056 shares at $6.72/share
June 6th – 21,750 shares at $6.90/share
June 8th – 16,907 shares at $6.65/share
Noto isn’t saying much about his purchase decisions, though he did say this about the company’s first-quarter 2022 results:
Because of the depth and breadth of our offerings, we were able to make swift and critical adjustments in priorities and spend as conditions evolved quickly, to capitalize on growth opportunities and exceed our performance targets. Strength across all three of our business segments — Lending, Technology Platform and Financial Services — drove our record first quarter adjusted net revenue of $322 million, and adjusted EBITDA of nearly $9 million.
With the numbers meeting or exceeding expectations, it’s easy to see why Noto is buying SoFi shares at the current bargain price.
What Is The Price Target For SoFi Stock?
A majority of analysts are optimistic about SoFi stock as well. They have predicted that SoFi stock will recover in the coming year, primarily because of Noto’s success over the past few years.
Despite the 2020 market crash, the years-long pandemic, and a student loan repayment pause for many borrowers, under Noto’s leadership, SoFi has built diversified revenue streams and a business model that is durable enough to withstand more economic turmoil if necessary.
There is strong demand for SoFi’s extensive menu of financial service products, and SoFi’s members have above-average credit scores – around 746 versus the national average of 716. Their average income is approximately $165,000. Those member characteristics increase SoFi’s resiliency regardless of economic conditions, which means SoFi can continue to do business with a lower risk of borrower default than traditional financial service providers.
Eight of the 13 analysts who weighed in rated SoFi stock a buy. The average price target is $10.29, with a high of $20.00 per share and a low of $7.00 per share. At the average price, investors would see returns of approximately 80 percent. That is precisely why SoFi’s CEO is buying so much stock.
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