Shares of Upstart (ticker: UPST) were on a downward trajectory on Wednesday following the company’s announcement of a larger-than-anticipated loss and a bleak outlook for growth.
Disappointing Financial Performance
Upstart reported an adjusted loss of 5 cents per share in the third quarter, surpassing analysts’ expectations of a loss of 2 cents. Furthermore, the company experienced a 14% decline in revenue compared to the previous year, generating $135 million which fell short of the consensus estimate of $140 million.
AI Technology and Cautious Lending Environment
Upstart is known for its utilization of artificial intelligence to enable lenders to approve more borrowers. During a conference call, the company highlighted the adverse effects of banks exercising caution in lending due to higher interest rates. As a result, Upstart’s lending partners originated 34% fewer loans in the third quarter compared to the same period last year.
Gloomy Outlook for Q4
Looking ahead to the fourth quarter, Upstart anticipates revenue of around $135 million, lower than the analysts’ forecast of $157.6 million. This disappointing outlook follows a similar projection made by the company in August.
In response to the news, Upstart’s stock plummeted as much as 30% shortly after the market opened. If this decline persists, it would mark the largest percentage decrease since the 34.24% drop observed in August, according to Dow Jones Market Data. At the time of writing, the stock was down 25% to $22.07.
Out of the 18 analysts tracking the stock, 10 have maintained a Sell rating since mid-September, according to FactSet, while seven say Hold. One analyst, BTIG’s Lance Jessurun, has recommended buying the stock.
Jessurun Optimistic Despite Lowered Price Target
After the earnings report, Jessurun stuck with his Buy rating on the stock but cut his target price by half to $32. In a research note, he wrote that the next few quarters should show similar weakness but given the possibility of the Federal Reserve cutting rates next May, “we believe that the macro environment should round the corner … and share price performance should likely follow.”
Chiaverini’s Concerns on Consumer Lending
Wedbush’s David Chiaverini stuck with his Sell rating and $10 target on the stock, calling out the “challenging consumer lending backdrop.”
Smith Highlights AI Potential but Stays Bearish
J.P. Morgan’s Reginald Smith also maintained his Sell rating and lowered his target price to $26 from $28. While Smith recognizes the potential of Upstart’s artificial intelligence lending platform, he expressed concerns about weaker market trends in the near term.