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Is the SoFi stock selloff overblown after the Palihapitiya selloff?

The SoFi [SOFI] stock is feeling the effects of Chamath Palihapitiya selling 15% of his stake in the company in mid-November.

Palihapitiya was key in getting the personal finance company listed earlier in the year via a SPAC, which could explain the market jitters and double digit declines.

However, with SoFi also posting decent third quarter numbers earlier in November, there’s a chance that the selloff is overblown.

All things considered, has an investable dip just been served up to bargain hunters? Or are there more enduring issues weighing on SoFi’s stock?

 

 

 

 

What’s happening with SoFi’s stock?

Overall, 2021 has been a volatile year for SoFi’s stock. Having closed at just under $24 on 7 June, the stock tumbled to around the $14 mark by the middle of August. And having rallied somewhat over September and November, the recent selloff looks to be a case of history repeating itself.

SoFi’s stock has plummeted over 31% since 15 November, going from around $23 a share to close Tuesday at $16.62, after news broke that insiders at the company had sold 50m shares in a secondary offering.

31%

SoFi's stock plunge since 15 November

 

News of November’s stock sale, including the 5.36m shares sold through Palihapitya’s ChaChaCha SPAC 5 LLC, is bound to ruffle some feathers. After all, in June the company went public via a SPAC merger. A merger that Palihapitiya had orchestrated through the Social Capital Hedosophia Corp. V SPAC - a partnership between his Social Capital and investment firm Hedosophia.

But it's worth bearing in mind that Palihapitya hasn’t completely divested from the company, and still holds 28.68m shares, or 3.6% of SoFi.

InvestorPlace’s Will AshWorth points out that even SoftBank, which unloaded 22.51m shares, is still SoFi’s biggest shareholder. AshWorth goes on to point out that SoftBank first invested in the company during a Series E funding round in 2015 and isn’t in the ‘business of permanent holdings’. 

 

Is the SoFi stock price an opportunity to buy?

SoFi’s November dip could represent a buying opportunity, especially as the fintech company posted improved quarterly earnings at the start of last month.

In the third quarter, SoFi’s net losses came in at $30m, down from a $42.9m loss in the same period last year. Revenue was $272m, well up from the $200m last year. In the third quarter, the company added 377,000 new members, its second highest quarterly increase, taking its membership to 2.94m, a 96% jump year-on-year.

$272million

Q3 revenues were up from last year's $200mn

 

“Through successful execution, we’ve grown, broadened, and diversified our three business segments, resulting in another quarter of record revenue and a fifth consecutive quarter of positive EBITDA,” SoFI said in a statement.

SoFi expects fourth quarter adjusted net revenue to come in between $272m and $282m, up to between 49% to 55% year-on-year, topping the 28% growth seen in the third quarter. For the full year, SoFi raised its guidance for adjusted net revenue of $1.002bn to $1.012bn and full-year adjusted EBITDA of $28m to $31m

Analysts seem to like the business model with consensus rating being overweight, according to the Wall Street Journal. An average analyst price target of $26 would see a 57.7% upside on Tuesday’s close. The highest price target is $30, while the lowest is $19.

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