The fintech space has experienced solid growth amid the increasing digitalization processes, thus changing the traditional financial sector. This industry is estimated to expand quickly over the next few years because of the high investment in technology-based solutions, allowing the global fintech market to hit $324 billion by 2026 with a CAGR of 25.18%.
However, the industry-specific challenges, coupled with market-wide correction, have affected the performance of fintech stocks, as evidenced by the 32.67% decrease in the Global X FinTech Thematic ETF (FINX) year-to-date (YTD) compared to SPDR S&P 500 Trust ETF (SPY) 12.84% loss over the same period. But, this dip presents contrarian investors the opportunity to scoop up shares of fintech stocks at a considerable discount.
SOFI operates as a fintech company that provides cryptocurrency trading, different types of loans, investments, and insurance services. HOOD is a company that operates as a financial services platform in the US, allowing its users to invest in stocks, options, crypto, ETFs, and gold.
YTD, shares of SOFI are down 59.5%, while HOOD stock has dropped 43% over the same period.
On April 7th, SoFi Technologies plunged over 7% in response to the full-year 2022 guidance cut after the U.S. government extended the federal student loan payment moratorium by Aug. 31. As a result, SoFi cut its adjusted full-year 2022 net revenue guidance to $1.47 billion from $1.57 billion and its adjusted full-year 2022 EBITDA guidance to $100 million from $180 million. SoFi’s CEO Anthony Noto said, “Even with the assumption of no end to the moratorium in 2022, our new full-year 2022 financial guidance represents approximately 45% year-over-year Adjusted Net Revenue growth to $1.47 billion, a tripling of Adjusted EBITDA to $100 million, and a doubling of margins…“
On April 26th, Robinhood CEO Vlad Tenev made a blog post announcing that the company had cut about 9% of employees amid the duplication of roles and job functions. This move aims to improve efficiency, and it will not slow the company’s growth.
Recent Quarterly Performance & Analysts’ Estimates
On March 1st, SoFi Technologies issued an earnings report for the fourth quarter of 2021. In Q4, its total revenue increased 53.8% year-over-year to $279.88 million, slightly beating Wall Street estimates by $0.41 million. SOFI’s total net revenue in the Lending segment grew 43% year-over-year to $213.76 million, while its Technology Platform segment revenue increased 42% YoY to $53.3 million. At the same time, its Financial Services segment delivered quad-digit growth to $21.96 million. It also posted a record 906,000 quarterly new product ads, implying a 51% sequential growth.
Besides, the company disclosed a GAAP Q4 EPS of ($0.15), beating analysts’ consensus by $0.01. It is important to note that SoFi reported the sixth consecutive quarter of positive adjusted EBITDA of $4.6 million. The company also delivered an 87% member growth to about 3.5 million in 2021.
For the first quarter, analysts project SOFI’s EPS to be ($0.13). Besides, analysts expect the company’s revenue to stand at $285.36 million in the current quarter.
Robinhood’s total revenues for its first quarter of 2022 decreased 43% year-over-year to $299 million, missing analysts’ expectations by $58.21 million. The main reason for a revenue decrease was a reduction in transaction-based revenues by 48% YoY to $218 million. Also, its net interest revenues were down 11% YoY to $55 million. With that, total operating expenses grew 49% YoY to $690 million, leading to a net loss of $392 million. As a result, the company reported a GAAP EPS of ($0.45), missing the Wall Street consensus by $0.10.
Besides, its Net Cumulative Funded Accounts grew 27% to 22.8 million, compared to its year-ago value of 18.0 million. However, the company’s monthly active users also plunged by 10% YoY to 15.9 million. Notably, Robinhood ended the quarter with an Adjusted EBITDA of ($143 million) versus a positive figure of $115 million as of 1Q2021.
The company’s EPS is expected to come in at ($0.35) in the second quarter of 2022. Also, analysts project its top line to decrease 37.52% YoY to $353.21 million.
Bullish options trade placed on SOFI stock
The options, which expire on May 6th, 2022, saw increased call buying on Tuesday. The open interest for the $6.50 calls rose by 4,361 contracts to a total of 12,733 open contracts (source: barchart.com). A buyer of those calls would need the stock to rise to $6.67 by the expiration date, a gain of about 4.2% from SOFI stock’s current price.
I believe SOFI, at these levels, is a better long-term buy. The recent decline in SOFI allows buying its shares at lower prices, especially considering that even with lowered guidance SOFI’s revenue in the midpoint still implies about 45% YoY growth and positive Adjusted EBITDA. Also, SOFI’s financials and growth prospects look relatively better compared to HOOD. Finally, a modest bullish options bet was recently executed in SOFI stock, indicating a bullish market sentiment from the options market.
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SOFI shares were trading at $6.28 per share on Wednesday morning, down $0.12 (-1.88%). Year-to-date, SOFI has declined -60.28%, versus a -12.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist. More...
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