SoFi Technologies (SOFI +0.67%) is on a roll. It has wowed investors with its strong growth and customer add-ons, it's launching new products to keep up the momentum, and SoFi stock is up nearly 80% year to date.
However, the stock dropped last week on the news that the company is issuing $1.5 billion in new stock. Let's check out what it's all about and why the market wasn't happy.
Image source: SoFi.
SoFi is in growth mode
Companies typically raise cash through equity offerings to fund operations. SoFi is in high-growth mode, and it's rolling out new products constantly as well as supporting an influx of new customers; there were 905,000 new additions in the third quarter, a record. It's launching a whole new set of blockchain-based products, and there's probably a lot more in the works that hasn't yet been announced.
The company said that it will use the funds for "general corporate purposes, including but not limited to enhancing capital position, increasing optionality and enabling further efficiency of capital management, and funding incremental growth and business opportunities."
NASDAQ: SOFI
Key Data Points
A thumbs-down from the market
SoFi is pricing the new shares at $27.50, while the closing price on Dec. 4, when the announcement was made, was $29.60. That's going to automatically send the stock down, and it hit the price of the new issue, where it remained on Dec. 8, when the new public offering closed.
It's also providing underwriters with the option of purchasing more than 8 million more shares within the 30 days following the stock issue, or $220 million worth more. That would be a total of more than $1.7 billion.
In general, the market doesn't like new stock offerings because of dilution. When calculating earnings per share (EPS), for example, as the share count expands, the earnings per share go down. That's not a great look for a company that wants to express itself as profitable and growing.
Buying opportunity?
Since the stock price hasn't dipped below the new offering price, it looks like the market isn't too disturbed by the move and is just bringing the price in line with the new stock. Investors probably recognize that this is not atypical for a company in growth mode, and it sets the foundation for future growth.
There are always options for getting more funds, such as issuing debt or using cash it already has, and in this case, management felt that this was the most favorable option. The market might have a much worse reaction to increasing debt or reducing cash.
The stock is likely to climb again as SoFi announces new services and excellent operating results.
