Shares of the financial technology company Upstart (NASDAQ:UPST) jumped over 70% following the company’s strong Q1 performance. Given the recent rally, UPST stock is up about 80% year-to-date. However, Wall Street analysts’ consensus ratings and average price targets indicate that the uptrend in UPST stock will not hold. Further, the average price target shows significant downside potential from current levels.
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The most significant catalyst for UPST stock was the funding arrangement of over $2 billion. During the Q1 conference call, UPST said that it secured multiple long-term funding agreements, which would deliver over $2 billion to the company in the next 12 months. As UPST depends on third-party financing, the long-term funding agreement amid credit tightening and rising interest rates was cheered by investors.
In a note to investors dated May 10, Goldman Sachs analyst Mike Ng expressed appreciation for the increased long-term capital commitment.
However, the analyst remains skeptical about the take rates, which he expects to decline, and borrower acquisition costs, which he forecasts to increase due to heightened competition. Take rate is the commission fee a marketplace levies for each transaction it facilitates on its platform. The analyst maintained a Sell recommendation on UPST stock.
Like Mike Ng, Wedbush analyst David Chiaverini also appreciates these long-term funding agreements. However, the analyst questions the “preferential economics” of these agreements. On May 16, Chiaverini reiterated his Sell call on UPST stock, citing weak delinquency and loss trends, “waning appetite from Upstart’s credit buyers and the securitization market,” and its dependence on third-party funding.
What’s the Prediction for Upstart Stock?
The macro uncertainty impacting origination volumes, a slowdown in the ABS (asset-backed securities) market, and concerns regarding higher delinquencies keep analysts bearish about Upstart stock.
UPST stock sports a Moderate Sell consensus rating based on one Buy, three Hold, and seven Sell recommendations. At the same time, analysts’ average price target of $14.45 implies a downside potential of 39.11%.
