We have decided to exit our $SOFI position after the most recent earnings report (1/30/2023). The 15% move intraday and a market close above its 200dma did not deter the decision process.
SoFi exhibited another strong quarter, beating estimates for EPS and top line. Giving a strong forward look for 2023, this gave the stock some tradable volume today.
The macro outlook for the next 3 quarters is profoundly mixed. Consumer credit is at all time highs, Fed meeting is in 2 days with an expected 25bps raise, all while stocks have accelerated in the most recent rally – with breadth above 200d MA as well: See this chart.
SoFi has consistently raised their yield for online savings accounts in accordance with fed hikes, attracting more customers and deposits, benefitting from the increased spread.
Remaining consistent with the macro outlook; we anticipate a contraction in GDP growth for H2 2023, with downward pressures on the housing market due to extremely elevated housing builds under contract with very little demand to support them. Increased borrowing rates has deflated consumer demand for housing; and core CPI remains hot. The tune is no different than recent market cycles; through the 2006-2008 cycle the Fed raised 300bps over 18 months – in 2002 the fed has raised 400 bips in 10 months. Engineering a soft landing will be harder than ever – unless Powell has raised quickly enough in a genius attempt to have 400bps of range to be able to cut when recession triggers hit.
The fintech industry as a whole is remarkably saturated – customers are optimizing between UI experiences with no inherent value add from one product to the next. If rates collapse, we expect a compression on SoFi margins and shortfalls of user growth paired with slowed topline targets. The capital withdrawn from SoFi, we find, to be more better allocated in the cyber, AI, and data industries.
Nier Capital Group 