SoFi Technologies recently made headlines as plans to raise capital sent the fintech stock spiraling to its worst day on record, sparking mixed reactions on Wall Street.
Capital Raise Details
On Tuesday, SoFi announced its intentions to offer $750 million of convertible notes due in 2029. Additionally, the company stated that it would grant the initial purchasers the option to buy an additional $112.5 million in notes within 13 days of the initial issue date.
Investor Concerns
Investors voiced their concerns over capital raises, fearing potential dilution. As a result, SoFi’s stock experienced a significant 15% drop on Tuesday, marking its most substantial one-day decline ever, according to Dow Jones Market Data.
Analyst Insights
J.P. Morgan analysts, who rate SoFi at Neutral, found the capital raise somewhat surprising. They highlighted the company’s healthy capital ratios, positive reputation with regulators, and low loan-loss rates but questioned the timing of the transactions.
Similarly, Wedbush analysts expressed a cautious stance in their Tuesday report, aligning with J.P. Morgan’s sentiments about SoFi’s recent capital decisions.
SoFi Shifts Focus to Providing Capital Relief
Analysts have noted a significant shift in SoFi’s approach over the past six months, moving away from aggressive capital deployment to strategies aimed at providing capital relief and building. Despite this change, some analysts remain cautious about the company’s performance.
Oppenheimer Analysts Find Silver Lining
Although Wedbush rates SoFi stock at Underperform with a price target of $3, Oppenheimer analysts, who rate the shares at Perform, highlighted a few reasons for optimism. They pointed out that SoFi recently replaced 2026 convertible notes with 2029 notes at a cost of 1.25% and paid down 12.5% of preferred stock. This move was seen as a positive one considering the rise in interest rates since the original debt issuance.
Sofi’s Promising Opportunity
Despite concerns about potential debt-to-equity exchanges that could dilute shareholders, Oppenheimer analysts believe there is an opportunity brewing for investors as the stock trades around $7. The recent pressure on SoFi’s stock was attributed to convertible arbitragers selling short in anticipation of the purchase of SoFi’s convertible deal.
Market Response and Outlook
On Wednesday, SoFi stock saw a 1.8% increase to $7.40, while the S&P 500 rose by 0.8%. The market response reflects a mix of cautious optimism and uncertainty about SoFi’s future moves.