Upstart Holdings Shares Tumble on Disappointing First-Quarter Guidance

by Warren Seah

Shares of Upstart Holdings took a nosedive on Wednesday, following the announcement of the company’s first-quarter financial guidance that fell short of expectations.

In premarket trading, Upstart shares plummeted by 14%, reaching $28.39.

JP Morgan analyst Reginald Smith expressed his surprise in a research note, stating, “This was a shock, as we previously assumed originations had bottomed and the business was right-sized for depressed levels.” Smith adjusted his price target to $24 from $26, maintaining an Underweight rating on the stock.

On Tuesday, Upstart revealed its projections for the first quarter, disclosing expected revenue of $125 million, significantly below analysts’ estimates of $152 million. Furthermore, the company predicted a loss of $25 million in earnings before interest, taxes, depreciation, and amortization (EBITDA), compared to analyst expectations of $5 million in EBITDA.

During the earnings call, Chief Financial Officer Sanjay Datta highlighted the increasing delinquencies affecting wealthier borrowers. As a result, Upstart has adopted a more conservative approach to loan pricing for this particular group.

Upstart Faces Challenges in Credit Market

Upstart, a prominent player in the lending industry, is facing headwinds due to concerns over its credit quality performance and macro risks. According to Wedbush analyst David Chiaverini, these factors could potentially weigh on the appetite of Upstart’s credit buyers and hinder the securitization market. Chiaverini has maintained an Underperform rating and set a price target of $10 for the stock.

In the fourth quarter, Upstart reported a loss of 11 cents per share, which aligned with analysts’ estimates. However, the company’s revenue of $140.3 million surpassed the consensus call of $134.8 million.

David Girouard, Chief Executive of Upstart, acknowledged that 2023 was a challenging year for both the company and the lending industry as a whole. High interest rates coupled with multiple bank failures instilled caution among lenders. Girouard emphasized the need for responsible operations in such an environment and expressed his caution about the near-term outlook for Upstart’s business.

While Needham analyst Kyle Peterson considers Upstart a long-term winner in the digital lending space, he believes that the recovery will remain uneven until credit performance improves and the macro environment stabilizes. Therefore, Peterson has maintained a Hold rating on the stock, without specifying a price target.

It is clear that Upstart has some hurdles to overcome before experiencing any substantial positive changes, according to Peterson.

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