SoFi Technologies posted record second-quarter results and raised its full-year revenue guidance, yet the stock dropped nearly 10% on the news. The sell-off came because profit guidance stayed unchanged, as the company plans to spend more on growth than it originally projected.
SoFi's stock fell by nearly 10% after the company reported its best quarter in history a few weeks ago. It has since rebounded along with other fintech stocks, but the reaction continues a pattern: SoFi beats expectations, then its stock retreats anyway.
A record quarter by the numbers
SoFi's revenue grew 40% to $1.2 billion, while adjusted EBITDA grew 44%. Net income of $157 million was the highest in the company's history. Loan originations reached $14.8 billion in the same quarter. The company now counts 15.8 million members, up 35% over the past year.
Its cross-buy rate, the share of products opened by existing customers, climbed from 35% to 51% over the past year. A rising cross-buy rate means SoFi is deepening customer relationships while lowering its cost structure, since converting an existing customer is cheaper than acquiring a new one.
Guidance holds back the profit outlook
Management raised its full-year revenue guidance, but its guidance for adjusted EBITDA and EPS stayed unchanged. Higher revenue is therefore not translating into higher profit expectations. SoFi's chief financial officer explained that the company is spending more on growth initiatives than originally planned.
The SoFi Plus premium membership product surpassed 200,000 paid subscribers in its first quarter, and loan originations and the cross-buy rate are both expanding. Holding profit guidance steady to fund initiatives that are already delivering results can be a reasonable trade-off, but extra spending adds uncertainty, and markets tend to punish stocks when perceived risk increases even if the underlying business is performing well.
Investors weigh spending against growth
The climbing cross-buy rate suggests SoFi's reinvestment is paying off, though the market remains free to stay skeptical. Similar spending increases are unfolding across AI stocks ramping up capital expenditure to meet demand, and there's no guarantee the extra spending will produce the desired return. If cross-buy growth stalls or member growth decelerates, the decision to spend more will look wrong in hindsight.
Source: The Motley Fool
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