Upstart Holdings, Inc. (NASDAQ: UPST), a leading artificial intelligence (AI) lending platform, reported its second quarter financial results on Tuesday, August 8, 2023. The company beat analysts’ expectations on both earnings and revenue, but lowered its full-year guidance due to macroeconomic uncertainties and rising interest rates. The stock fell 17.5% in after-hours trading following the announcement.
Q2 Highlights
- Revenue: $135.8 million, up 40% year-over-year (YoY), and slightly above the consensus estimate of $135.2 million.
- Earnings: $0.06 per share, compared to a loss of $0.07 per share in Q2 2022, and well ahead of the consensus estimate of a loss of $0.07 per share.
- Contribution Margin: 45%, up from 41% in Q2 2022, and a record high for the company.
- Cash Flow: $11.6 million, positive for the first time in the company’s history.
- Loan Volume: $1.8 billion, up 27% YoY, and representing 169,560 loans facilitated by the platform.
- Bank Partners: 25, up from 10 in Q2 2022, and including new additions such as Arbor Financial Credit Union, Texas Bay Credit Union, CME Federal Credit Union, and The Bank of Denver.
- Auto Retail: Launched in Q2 with Acura and Mercedes-Benz as preferred digital retail providers.
Q3 and Full-Year Outlook
- Revenue: $295 million to $305 million for Q3, and $1.25 billion for the full year, down from the previous guidance of $1.4 billion.
- Earnings: Not provided.
- Loan Volume: Expected to decline due to higher interest rates and lower approval rates.
- Default Rates: Expected to increase as government stimulus and forbearance programs expire.
CEO Comments
Dave Girouard, co-founder and CEO of Upstart, said:
“As a result of our efforts over the past year to improve efficiency and operating leverage in our business, we achieved record-high contribution margin and positive cash flow in Q2. While the economic environment continues to be challenging, Upstart has the opportunity to grow quickly and profitably when we return to a normalized economy. We’re in the pole position to lead the industry to an AI-enabled future that dramatically improves access to credit for hundreds of millions of Americans.”
Analyst Reactions
Analysts had mixed reactions to Upstart’s results and guidance. Some praised the company’s strong performance and growth potential, while others expressed concerns about the competitive landscape and the sustainability of its margins.
BTIG analyst Mark Palmer maintained his buy rating and $72 price target on UPST, saying:
“We believe that UPST’s AI-driven platform has enabled it to achieve superior credit performance relative to its peers while also allowing it to expand its addressable market by approving more borrowers at lower rates than traditional lenders.”
However, Morgan Stanley analyst James Faucette downgraded UPST from equal-weight to underweight and lowered his price target from $23 to $13, saying:
“Credit continues to underperform on a relative basis, with monthly annualized net loss rates hitting record levels. As we await clarity on the underlying economics of the committed capital arrangements, we recommend investors fade what appears to be a low-quality rally.”
Investor Sentiment
Investors were disappointed by Upstart’s lower guidance and sold off the stock in after-hours trading. The stock closed at $51.75 on Tuesday, down 10.97% from Monday’s close of $58.15. The stock is still up 297.6% year-to-date, but down 91.6% from its all-time high of $401.49 reached in October 2022.
