Market Daily

Market Daily

Upstart Shares Dropped 40% after Slashing Its Predication for the Whole Year

Shares of Upstart Holdings Inc. dropped more than 40 percent in after-hours trading Monday after the firm slashed its prediction for the whole year, saying that the current macroeconomic backdrop is projected to weigh on loan volume.

The company, which makes loan decisions with the help of artificial intelligence, now anticipates revenue of over $1.25 billion in 2022. The company had previously predicted revenue of $1.4 billion.

“On the margin, a whole lot of folks that would have been approved are no longer approved,” Chief Executive Dave Girouard said on Upstart’s UPST, -8.06 percent earnings call, due to the spike in consumer interest rates.

Many people have been denied loans, while others have been approved, but the interest rate is a few percentage points higher. “So there’s a whole bunch of loans that just never happened, and there are people who are still approved, but the interest rate is a few percentage points higher, and a certain fraction of them are going to decide that that’s not the product that they want,” said the economist.

The absence of government stimulus activities has caused delinquencies to rise, according to Chief Financial Officer Sanjay Datta, despite the fact that they had been “unnaturally low” for the previous 18 months.

Upstart has witnessed a stability in delinquency patterns over the last 60 days, but the characteristics of delinquency also contribute to higher interest rates quoted to consumers, he said.

As a result of the uncertainty in the macroeconomic environment and the potential for a recession later this year, we have decided to be more cautious in our forecasts,” Datta said on Upstart’s earnings call.

Upstart expects revenue of $295 million to $305 million in the second quarter, but experts had predicted $335 million.

Analysts had predicted $300 million in revenue for the most recent quarter, but Upstart’s revenue rose to $310 million from $121 million.

While FactSet predicted $287 million in fee income, the company collected $314 million in fee revenue, an increase of 170 percent.

At 34 cents per share, first-quarter net income for Upstart was $32.7 million, up from $10.1 million (or 11 cents per share) a year earlier. Stock-based compensation and other costs were factored into the results, and Upstart ended the quarter with earnings per share of 61 cents, compared to 22 cents a year earlier and ahead of the FactSet average estimate of 53 cents.

On the earnings call, Girouard commented, “We are actually extremely pleased and quite thrilled with the results.” Even though 2022 is “a tough year in the economy,” he stated that he is “exceptionally confident in the strength of the business and bullish about our future, as we have been.”

It has lost 31 percent of its value in the last three months as the S&P 500 has dropped 13 percent.