Cathie Wood Passed On SoFi, SoftBank Sold Out – Are The Bulls Missing Something? (NASDAQ:SOFI)

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While it’s popular now to criticize Cathie Wood, the fund manager is popular with the public ARK Innovation ETF (ARKK), she was undoubtedly one of the most formative figures of the brief investment period during the pandemic. In retrospect, this period has now expired defined by the abundance of euphoric animal spirits on stock market valuations. That would take SoFi’s stock to just over $25 per common share, a level that now seems so alien and high to current shareholders. But neither the ARK Innovation ETF, their most prominent fund, nor the more relevant ARK Fintech Innovation (ARKF) features SoFi (NASDAQ:SOFI). Why is that?

In fact, both Coinbase (COIN) and Block (SQ) occur. But Cathie’s mandate to invest in “disruptive innovative companies” has ruled out SoFi. To be clear here, this is positive for current SoFi shareholders. While I’ll refrain from criticizing ARKF’s performance, SoFi’s removal from the fund perhaps reflects one of the longer-term bulls for the company.

SoFi business areas

SoFi

SoFi’s business segments are not inherently risky “sexy” lines of business that draw the eyes of fast and loose traders looking for the next momentum-driven top. Personal Loans, Real Banking, Refinancing and Insurance. The company’s businesses are in established industries that have always been in demand, have little regulatory scrutiny, and will be needed long into the future. Households will need banking ten years from now, but the same can’t be said for certain of some of the industries Ark supports.

Stable companies in an ecosystem for growth

There’s a certainty that comes with such businesses, as they’re unlikely to be hit by catastrophic industry collapse or regulatory risk. The disintegration of Bitcoin and the broader crypto industry, for example, has caused Coinbase’s revenue to fall nearly 64% year over year in the most recent reporting quarter. SoFi doesn’t depend on a single “disruptive” and volatile industry for the majority of its revenue. This has meant that the company was able to increase its sales in the most recent reporting quarter by almost 54% year-on-year, despite the general economic and stock market chaos since the beginning of the year. SoFi’s business operations ecosystem includes a diversified number of stable industries that have been around for centuries, long before the US was even founded as a country. These aren’t inherently sexy, but they are structurally coherent and will always be in demand. SoFis first acquisition of Golden Pacific Bancorp and the successful move to obtain a traditional banking license solidifies its position.

The company remains one of the few fintech companies after the Great Financial Crisis after 2008 to swap its non-bank lender moniker for a banking license, essentially joining the hat of the same group it originally set out to compete with. Not a Bad Move, Stable and Boring JPMorgan Chase (JPM) reported sales growth of 10.4% with earnings beating consensus estimates. This rush for stability is attracting a more stable investor base, diminishing SoFi’s long-term investment thesis and increasing the likelihood that the company will eventually achieve steady profitability.

Not every investment has to be disruptive

It is important that shareholders sometimes review their investment memos and question their initial belief in an investment. The inherent shunning of SoFi by one of the biggest prominent investors of the past decade isn’t a bad thing. Additionally, the closure of SoftBank’s SoFi holding (OTCPK:SFTBY) was more likely due to internal disruptions resulting from catastrophic losses the Vision Fund suffered from a series of back-to-back bad investments.

That SoFi’s operating segments are not involved in trading non-fungible tokens or the latest cryptocurrency that supports a metaverse bolstered my initial investment conviction. Though SoFi isn’t profitable, the company operates in more stable parts of the economy that aren’t subject to the whims of pet spirits from inexperienced retailers. This greatly increases the likelihood of achieving short-term profitability based on non-volatile revenue.

The earlier investment environment that propelled SoFi to its previous highs and made Cathie such a popular and dominant investor is likely as good as dead as low interest rates are a thing of the past. Additionally, the flood of liquidity from excessive fiscal intervention has been unprecedented during the pandemic and will likely never be repeated. As such, the kind of excessive euphoria experienced by a large crowd of retail investors on every single Ark trade is now likely a footnote in the history of the pandemic.

A brutal recession, inflation and an increasingly restrictive Fed await us all. All of this would, of course, affect SoFi’s growth, either through a slowdown in lending and bank demand or through rising defaults. But the company’s lack of dual exposure to macro and micro risk is a good thing for its shareholders. I continue to buy stocks whose price shows great potential over a long-term holding period.

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