Upstart Stock Drops Sharply as Earnings Outlook Dips

Upstart Stock Drops Sharply as Earnings Outlook Dips

Upstart shares plunged on Tuesday after the artificial intelligence lending platform cited higher interest rates and an uncertain economy to cut its full-year revenue forecast.

Even though the company’s first-quarter performance was better than expected, it cut its 2022 revenue forecast from an earlier estimate of $1.4 billion to $1.25 billion.

Analysts polled by Refinitiv had expected Upstart’s average second-quarter sales of $335 million, while the company itself expects revenue of between $295 million and $305 million.

Tuesday’s closing price was $33.61 per share, down 56.4% from the previous day. Upstart shares have fallen 91.6% from their October high of $401.49 per share.

Chief Financial Officer Sanjay Datta told Upstart’s earnings conference on Monday that “given the general macroeconomic uncertainties and the emerging prospect of a recession later this year,” it was wise to show a greater degree of conservatism in its future estimates.

Rising interest rates, according to the company that uses artificial intelligence to determine a borrower’s creditworthiness.

Plus, it has the effect of lowering application acceptance rates, CEO David Girouard noted during the earnings conference.

As the Federal Reserve continues to hike rates and shrink its balance sheet in an effort to curb persistent inflation, new leadership has warned of more economic problems ahead.

Following hawkish signals from the Fed, Girouard predicted that prices would rise further later this year, reducing his company’s trading volume.

Additionally, the company said borrower defaults are becoming more common. Delinquency and delinquency rates have fallen to their lowest levels in decades during the outbreak, thanks in part to government aid and stimulus measures.

There has been a dramatic increase in loan delinquency rates in recent months, and they are now back to pre-pandemic levels or even beyond, according to Datta.

After the quarterly report, analysts from Goldman Sachs, Piper Sandler, Citigroup and Stephens issued a flurry of downgrades for Upstart.

A Piper Sandler analyst downgraded the company to a neutral rating on Tuesday and lowered its price target to $44 from $230. An updated forecast for Upstart’s closing price on Monday points to a 75% decline in the stock’s value.

“Given the macro uncertainties, the range of results for UPST has increased,” Ramnani wrote in the note. “Based on the speed and intensity of a recession, we expect further decline.”

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