SoFi (SOFI) stock fell more than 6% on Friday, Dec. 5, after the company announced a $1.5 billion capital raise the previous day. The move was unexpected, as SoFi doesn’t appear to be in any real need of cash, given its regulatory capital requirements. SoFi has also been diversifying into a capital-light business, and in the third quarter, 56% of its revenue came from its Financial Services and Technology Platform businesses, which are not capital-intensive like its lending business. In its announcement, SoFi said it intends to use the funds for “general corporate purposes,” which is as cursory a disclosure as a company can provide.
Meanwhile, while the stock sale was surprising, the price action wasn’t. Stock sales are usually dilutionary, and shares tend to fall after such offerings. Plus, SoFi priced shares at $27.50, which was below their trading price at the time.
This is not SoFi’s first capital raise this year. The company announced a similar offering in July and raised $1.7 billion. Commenting on that offering, CFO Chris Lapointe said during the Q3 earnings call that the “opportunistic raise significantly increased our capital levels and allowed us to reduce our higher cost debt by $1.2 billion, making our balance sheet even stronger and giving us great flexibility to pursue growth opportunities.”
While the company hasn’t explicitly said so, this more recent capital raise is also opportunistic, as it capitalizes on the recent rally to raise fresh funds. It also further strengthens SoFi’s balance sheet and will help the company invest in growth.
SoFi has several growth avenues in the short- to medium-term. These include its recently relaunched cryptocurrency trading business. It has also been betting on blockchain and plans to integrate SoFi Pay with the yet-to-be-launched SoFi USD stablecoin.
The company’s growth story is still in its beginning stages, as its brand recognition remains quite low and the total addressable market is gigantic. SoFi has been growing at the expense of banks, most of which lack the agility of fintech.
While I am often wary of a company doing frequent “opportunistic” capital raises, context and perspective matter. It ultimately boils down to how efficiently the capital is deployed. I would argue that SoFi has been quite disciplined on that front, and I have no reason to believe otherwise with this new round.
