Shares of Upstart Holdings, Inc. (UPST) declined almost 15% in the extended trading session on Monday after the company released disappointing second-quarter results and third-quarter guidance, which was way below analysts’ expectations.
The quarterly miss could be attributed to a challenging macroeconomic environment that led to funding constraints. Further, the company refrained from giving full-year guidance due to the uncertain macro and financial environment.
What Type of Company Is Upstart?
Based in California, Upstart is the provider of cloud-based, artificial intelligence (AI) lending platform that aggregates consumer demand for loans and connects it to the network of Upstart AI-enabled bank partners.
A Snapshot of Upstart’s Q2 Results
Adjusted earnings of $0.01 per share fell significantly short of analysts’ expectations of $0.08 per share. Disappointingly, it was much lower than the earnings of $0.62 per share in the prior-year period.
Revenues jumped 17.6% year-over-year to $228.16 million but lagged consensus estimates of $235.3 million. The increase in revenues reflected a surge in fee revenues, which increased 38% to $258 million.
At the end of the second quarter, the company reported cash and cash equivalents of $914.4 million, higher than $617.5 million at the end of the prior-year period.
In response to the funding constraints faced by the company, Upstart CEO Dave Girouard commented, “We’re taking the necessary actions to build a more resilient and committed funding model over time.”
He added, “We’re confident that our AI-based risk model is more accurate than ever, and provides the opportunity for long-term, sustainable growth.”
Upstart Provides Muted Q3 Guidance
Adding to investors’ disappointment, the company has provided Q3 revenue guidance of $170 million, which is much lower than the consensus estimate of $246.58 million.
Meanwhile, Upstart has refrained from giving full-year guidance because of an uncertain macro and financial environment.
What Is Upstart’s Target Price?
Upstart’s average price target of $33.04 implies 2.39% upside potential. On TipRanks, analysts have a Hold consensus rating on UPST stock, which is based on two Buys, seven Holds, and five Sells.
Retail investors are also not happy with the stock. TipRanks’ Stock Investors tool shows that investors currently have a Negative stance on Upstart, with 1.1% of investors decreasing their exposure to UPST stock over the past 30 days.
Key Takeaways
Upstart has lost over three-fourths of its market capitalization over the past year. Ahead of its earnings, based on the expectation of positive results, UPST stock recovered over 35% in the last five trading days. However, all hopes were shattered by the lackluster results.
Upstart’s management said the challenges with loan funding and reduced loan originations were due to an uncertain macro climate. Further, potentially increased leverage of its balance sheet perhaps did not go well with the investors, leading to the share price decline.
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