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Second-quarter earnings results for Upstart are expected to be released on Aug. 8.
Dreamstime
Shares for
Upstart Holdings
were tumbling Friday after the artificial-intelligence lending company reduced its revenue expectations for the second quarter on Thursday amid rising interest rates.
Second-quarter earnings results for Upstart (ticker: UPST) are expected to be released on Aug. 8 after the markets close. The company now expects revenue to be approximately $228 million for the quarter, which is a decline from previous guidance of $295 million to $305 million. Analysts polled on FactSet were expecting revenue for the second quarter of $297.6 million.
Upstart stock tumbled 21.1% Friday to $26.64 and was on track to close at an all-time low, while the
S&P 500
rose 0.1%. The stock has fallen 93% from its 52-week closing high of $390.00 in October 2021 and is down 82% in 2022.
So what caused the company’s change in revenue guidance? According to Upstart—the macroeconomic environment.
“Inflation and recession fears have driven interest rates up and put banks and capital markets on cautious footing,” said Upstart CEO Dave Girouard in the news release.
“First, our marketplace is funding constrained, largely driven by concerns about the macroeconomy among lenders and capital market participants. Second, in Q2, we took action to convert loans on our balance sheet into cash, which, given the quickly increasing rate environment, negatively impacted our revenue,” Girouard added.
JMP analyst Andrew Boone downgraded his rating of Upstart to Market Perform from Outperform without a price target after the preliminary results were released, and said that what drove the downgrade “is limited revenue visibility going forward as Upstart does not want to hold loans on its balance sheet while capital market participants are less willing to fund originations.”
Boone added that loans continue to perform approximately in line with expectations, while Upstart has a significant catalyst ahead in auto. “However, given the worsening macro environment and limited visibility into when capital markets will reopen for Upstart, we believe the risk/reward in shares is balanced at current levels,” Boone said.
Boone isn’t the only analyst with a Hold equivalent rating on the stock. In fact, of the 10 analysts polled on FactSet, five analysts rate the stock as a Hold while three rate it as a Sell and two say it is a Buy.
John Hecht from Jefferies is one of the analysts that rates the stock as a Hold and has a $44 price target for Upstart. Hecht wrote that he sees “ongoing uncertainty pertaining to UPST’s volume/revenue targets as the credit/investment climate evaluates ongoing performance issues.”
Wedbush analyst David Chiaverini maintained his Underperform rating and $15 price target on Upstart after the preliminary results, but lowered his GAAP earnings estimates for the company for the years 2022 through 2026.
In a research note, Chiaverini said that he expects the company to “tap the breaks on its hiring efforts this year and slow its expense growth to mitigate the headwinds on the revenue side.” This wouldn’t be out of the ordinary, as tech companies have been slowing down hiring or laying off employees in the past few months.
Chiaverini added that “the company has yet to operate through a true recession which means its underwriting model has yet to be battle-tested,” and he fears that “weakening delinquency and loss trends combined with macro and geopolitical risks could lead to waning appetite from Upstart’s credit buyers and the securitization market.”
Write to Angela Palumbo at angela.palumbo@dowjones.com
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