Stocks swooning are par for the course in 2022, but Upstart’s (UPST) post-earnings crash still managed to be eye-catching.
The shares cratered by 56% in Tuesday’s session after the AI lending platform’s outlook fell short of expectations in a big way.
2Q22 revenue is expected in the $295 million to $305 million range, lower than the Street’s forecast of $334.8 million; Adjusted EBITDA is expected to come in between $32 to $34 million, some way under the $59.2 million consensus estimate. And for the full-year, Upstart lowered its revenue projection to around $1.25 billion, compared to the prior forecast of $1.4 billion.
The market’s reaction to the soft outlook completely overwhelmed what was actually a good quarterly report; Q1 revenue of $310 million beat Wall Street’s $300 million estimate, and also came in far higher than the $121.3 million reported during the same period last year. Adj. EPS of $0.61 also beat the $0.53 consensus estimate.
JMP analyst Andrew Boone puts the lackluster guidance down to “rising rates coupled with credit normalization” which are are lowering conversion on the platform.
“This as the securitization market is seeing greater volatility as Upstart increased the loans held on its balance sheet by $345M Q/Q ($598M at quarter end), increasing its credit risk and suggesting the securitization market may need higher returns, further pushing Upstart’s consumer rates higher,” the analyst explained.
However, although Boone recognizes the risk around credit conditions getting further aggravated, additional rate hikes, and Upstart now holding more loans on its balance sheet, the analyst believes these factors are “fully incorporated” into his model. And with the shares now given a “valuation reset,” estimates appear conservative, with Boone anticipating numbers can “begin to move higher from here.”
As such, Boone’s Outperform (i.e., Buy) rating stays put. That said, there is a meaningful cut to the price target. The figure moves from $245 to $70, yet the revised target still leaves room for 12-month returns of ~84%. (To watch Boone’s track record, click here)
Overall, Wall Street’s projections for Upstart offer some contradictions; on the one hand, based on 8 Holds, 3 Buys, and 2 Sells, the analyst consensus rates the stock a Hold. However, such has been the share price’s meltdown, the $53.45 average target suggests the shares will climb 40% higher in the year ahead. (See Upstart stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.