Stocks to sell

SoFi Stock Is Doomed for a Reason You May Never Even Have Considered

The whole fintech movement has been a popular theme for investors going back quite some time. One of the leading beneficiaries of this is SoFi Technologies (NASDAQ:SOFI) stock.

Source: rafapress /

SoFi is a financial services company offering a variety of consumer products.

The product portfolio covers a number of services such as personal, student and home loans, stock and crypto-currency investing, credit card issuance, money management, as well as a B2B fintech service through the Galileo technology platform.

The debate however now centers on whether it is a traditional lender, a technology company, or a fintech company (whatever that means exactly).

SOFI became public through a SPAC merger with Social Capital Hedosophia Holdings, a blank check company controlled by SPAC abuser Chamath Palihapitiya. The deal closed on May 28th and the company became publicly listed on June 1.

A Closer Look at SOFI Stock

SoFi’s consumer lending segment represented approximately 76% of total revenues in Q1 2021 (down from 83% in FY 2020). So chalk one up for those that say it’s bank. Technically, it’s not a federally chartered bank, but considered a digital personal finance company.

Its deposits aren’t insured by the FDIC and those customer’s deposit accounts can’t be used for lending. However, it does sweep customer funds to one or more of its six partner banks to get FDIC insurence.

The true fintech operations generated about 17% of revenues last year but are expected to be the growth engine. The company expects the B2B tech platforms to represent 25% of revenues by 2025.

The other financial services segment only 2% of revenues last year, but is expected to be almost a third of revenues by 2025. These include such products as investment accounts, insurance, credit scoring, and cryptocurrencies.


The money game is notoriously difficult whether you’re JP Morgan (NYSE:JPM) or a small community bank. This is particularly true if the company doesn’t generate substantial free cash flow.

I’ll let SoFi describe it best according to their SEC filings which I doubt very few investors read nowadays.

“We expect our competition to continue to increase, as there are generally no substantial barriers to entry to the markets we serve,” the filing said.

Every new fintech company thinks they’re better than the competition, and some may be.

But the overwhelming amount of consumer lenders, community banks, national banks, brokerage firms and other fintech competitors can not be ignored when investing in this company.

Naming Rights Makes Me Bearish

Valuations are hard to come by with low levels of EBITDA and no shareholders equity to speak of. Let’s just say SOFI stock is an overvalued fintech/bank/financial services company that doesn’t deserve a $12 billion market cap at this point.

But what really makes me bearish though is the stadium naming rights issue. In 2019 it was reported that SoFi is paying $20 million per year for 20 years to be the name of the new Los Angeles multi-use stadium that will host the LA Rams and LA Chargers.

There used to be a study that correlated when a company pays for expensive stadium naming rights, soon after the stock suffers materially. Think Enron, CMGI, PSINet, Fruit of the Loom, 3Com, Conseco, Adelphia, and Transworld.

On the surface, what is a company that is EBITDA negative and doesn’t generate free cash flow (at least in 2019) doing spending $20 million a year for that type of failed marketing? Just a crazy and non-sensical allocation of capital.

I believe SoFi is doomed simply for that reason.

On the date of publication, Tom Kerr did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Tom Kerr has worked in the financial services industry for over 25 years. Currently he is a Senior Portfolio Manager at Rocky Peak Capital Management. Prior to that he was Chief Investment Officer and Director of Research of SGL Investment Advisors, and has served in a number of positions at other investment related organizations. Mr. Kerr has also been a contributing writer to and He’s a CFA charterholder and obtained a B.B.A in Finance from Texas Tech University.