Chamath Palihapitiya of Social+Capital Partnership speaks onstage with Leena Rao of TechCrunch
Source: Getty Images

Why You Should Take Advantage of IPOE’s Pullback

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Feb. 25 2021, Published 7:26 a.m. ET

Chamath Palihapitiya-led blank-check company Social Capital Hedosophia Holdings V Corp (IPOE) is taking fintech provider Social Finance (SoFi) public. The IPOE SPAC's stock soared on news of the SoFi deal but has pulled back recently. Should you buy on the dip in IPOE stock?

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SoFi is on track to being the fourth company to go public through a Palihapitiya-sponsored blank-check company. In Oct. 2019, the billionaire took Richard Branson–backed Virgin Galactic (SPCE) public through the IPOA SPAC. In Dec. 2020, the IPOB SPAC took Opendoor (OPEN) public, and in Jan. 2021, the IPOC SPAC took Clover Health (CLOV) public. 

If SoFI is such a good business, why is the IPOE SPAC stock falling?

This year, Virgin Galactic and Opendoor stocks are up 94 and 36 percent, respectively, while Clover Health is down 38 percent. Investors have continued to handle Palihapitiya-linked stocks cautiously since short-seller Hindenburg Research accused the billionaire of misleading investors in the Clover Health transaction. Hindenburg claimed that Palihapitiya failed to conduct proper due diligence on Clover before recommending it to IPOC investors. The allegations promoted the SEC to open a probe into Clover.

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Chamath Palihapitiya SPAC stocks retreat after Clover Health issue

This year, Virgin Galactic and Opendoor stocks are up 94 and 36 percent, respectively, while Clover Health is down 38 percent. Investors have continued to handle Palihapitiya-linked stocks cautiously since short-seller Hindenburg Research accused the billionaire of misleading investors in the Clover Health transaction. Hindenburg claimed that Palihapitiya failed to conduct proper due diligence on Clover before recommending it to IPOC investors. The allegations promoted the SEC to open a probe into Clover. 

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CLOV stock is down more than 40 percent from its 52-week high, and the company's troubles have caught up with Palihapitiya stocks. IPOF, IPOD, and IPOE are down 18, 19, and 31 percent, respectively, from their 52-week highs.

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In addition to the Clover Health issue, IPOE has been caught in a correction across fintech stocks. LendingClub (LC), LendingTree (TREE), and Affirm Holdings (AFRM) have all fallen at least 3 percent in the past week. Square (SQ) and PayPal (PYPL) are down more than 10 percent. As IPOE SPAC stock had nearly tripled its IPO price, it’s also possible some investors may be trying to profit, further pressuring the stock. 

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SoFi battling competitors of different sizes

SoFi, a one-stop-shop for fintech services, competes with both public and private companies. Its publicly traded rivals include Square, PayPal, LendingTree, and LendingClub, and its private competitors include Avant, Acorns, CommonBond, and Robinhood.

SoFi versus LendingTree

LendingTree, one of SoFi’s top competitors, operates an online lending marketplace where multiple lenders compete. As a result of the competition, borrowers can secure credit at optimal terms. LendingTree stock trades for $330, giving the company a market valuation of more than $4 billion. Meanwhile, the IPOE SPAC deal has valued SoFi at $8.7 billion.

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Is IPOE a good stock to buy after the fall?

The recent pullback in IPOE stock may be an opportunity for investors to enter the Palihapitiya SPAC at a discount. With the SoFi deal in hand, IPOE stock is a ticket to a promising company in the growing fintech space.

SoFi has been growing rapidly and is on track to become profitable in 2021. It generated revenue of $620 million in 2020 and now aims to grow it to $1 billion this year. By 2025, SoFi sees its revenue reaching $3.7 billion. The company has also received preliminary approval to open a bank. Operating a bank would give SoFi access to more cash in customer deposits, which could allow it to make more loans. Being its own bank would reduce also SoFi's costs, further boosting its profitability. 

SoFi is coming to the public market as a well-funded business. The company is set to receive $2.4 billion upon closing of the IPOE SPAC deal. Moreover, its successful team led by CEO Anthony Noto will continue to steer the business after the merger.

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