On the surface, financial technology (fintech) specialist and all-in-one banking and personal finance hub SoFi Technologies (SOFI) appears to be firing on all cylinders. It delivered outstanding results for its second quarter of 2022 earnings report against a wave of concerning economic headwinds. Not surprisingly, SOFI stock closed up more than 28% for the midweek session. Still, there’s one detail that investors shouldn’t ignore.
First, let’s discuss the headline numbers. Ahead of the Q2 disclosure, covering analysts anticipated that SoFi would deliver an adjusted loss of 14 cents per share on revenue of $340.8 million. Instead, the company posted a loss of 12 cents per share, with the top line coming in at $356 million.
Per SoFi CEO Anthony Noto, “We generated record adjusted net revenue, which was up 50% year over year, and our eighth consecutive quarter of positive adjusted EBITDA, which doubled sequentially.” Further, the head executive added, “While the political, fiscal, and economic landscapes continue to shift around us, we have maintained strong and consistent momentum in our business.”
The latter really addressed the giant pink elephant in the room. Even among the bulls of SOFI stock, arguably few were anticipating such a strong outing amid rising geopolitical tensions, soaring inflation, a hawkish Federal Reserve and brewing recession fears.
Still, not everyone is buying into the enthusiasm over SOFI stock, as evidenced by unusual options activity.
SOFI Stock Isn’t Appealing to Everyone
When the final transaction was sealed for the Aug. 3 session, SOFI stock garnered the spotlight for another stage, this time for unusual trading action in the options market. Curiously, traders piled into the $8 put options with an expiration date of Aug. 5, 2022, which natively has downward price implications.
It’s an interesting setup because SOFI stock closed at $8.23 in the open market. Further, during the afterhours session, the shares dipped down to $8.13. Therefore, it’s quite possible that, given the wild dynamics of the new normal, SOFI could dip below the aforementioned strike price.
Notably, volume reached 18,375 contracts against an open interest reading of 124. Further, the bid-ask spread as represented by the midpoint price (18 cents) was 5.6%, indicating reasonable confidence that the market maker can place the transaction favorably. Still, it could be anyone’s game as there are two days for SOFI stock to dip below 1.6%.
Looking beyond this near-expiry options contract, it’s important for investors to not get too carried away with SOFI stock. Yes, Wednesday’s meteoric swing higher was very encouraging, especially against bearish economic data. However, even with the skyrocketing, SOFI is down almost 48% for the year.
Focus on the Personal Loan Originations
While adjusted net revenue related to SoFi’s lending segment amounted to $250.7 million (an increase of 2.6% against the year-ago quarter), investors should set aside the headline print and dig deeper into the segment financials. In particular, arguably few media sources are keying in on SoFi’s personal loan originations.
Among the three loan origination programs, personal loans represent the biggest segment and the only one that has seen increases on a last-12-month (LTM) basis compared to 2020 results.
- Student loan originations: $4.93 billion in 2020, $4.29 billion in 2021, $3.81 billion LTM
- Personal loan originations: $2.58 billion in 2020, $5.39 billion in 2021, $7.78 billion LTM
- Home loans originations: $2.18 billion in 2020, $2.98 billion in 2021, $2.09 billion LTM
In other words, while student loans and home loans suffered LTM-vs-2020 losses of 23% and 4%, respectively, personal loans tripled during the same period. No matter what your feelings of SOFI stock are, this is a matter worth serious investigation for prospective participants.
While home and student loans are geared specifically toward a defined (and potentially economically beneficial) endeavor, personal loans can be applied for just about anything else. Some of the more common uses include moving expenses, medical bills, funeral costs, vacation expenses, unexpected emergencies and debt consolidation.
Significantly, Americans are entering a possible recession with a near-record amount of credit card debt. Therefore, the sharp spike in personal loan origination when other key segments are down is probably not the best sign you want to see from SOFI stock or any other financial institution.
A Possible Bull Trap
In the near term, anything is possible. SOFI stock could end up swinging higher, thus ruining the aforementioned bears’ day. That moment could come very quickly on Friday. However, against a longer-term framework, investors ought to be at least somewhat skeptical. Sure, the Q2 report was awesome in context. But a deeper dive reveals that the upswing may be fundamentally flawed.
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