UPST Stock: Price Tanks 10% Post Q3 Results
10 Novembro 2022 - 6:29PM
Finscreener.org
Shares of fintech company
Upstart (NASDAQ:
UPST) fell by more than 10% yesterday after it
announced Q3 results. Upstart reported revenue of $157 million and
an adjusted loss of $0.24 per share. Analysts forecast Upstart to
report revenue of $169.4 million and adjusted earnings of $0.08 per
share. In the year-ago quarter, its revenue stood at $228 million
while adjusted earnings of $0.72 per share.
Further, the company forecasted
Q4 sales between $125 million and $145 million compared to
consensus estimates of $185.3 million. We can see that Upstart not
only missed earnings and revenue guidance for Q3, but it also
provided a tepid forecast for the quarter ending in December,
dragging its stock lower in the process.
What is Upstart, and what does it do?
Upstart operates in the financial
lending space and provides tools and solutions to lower the credit
risk of its banking partners. The Upstart
artificial intelligence lending platform aims to improve access
to affordable credit and reduce the risks or costs of lending for
enterprise partners. Upstart claims its platform uses machine
learning models to accurately identify risk, increasing approval
rates compared to legacy credit score-based lending
models.
Upstart is wrestling with a
challenging macro environment and higher interest rates, which have
decelerated its top-line growth by a significant margin in 2022.
The company increased revenue from $95 million in 2018 to $846.6
million in 2021. Analysts now expect sales to fall to $840 million
in 2022.
However, Upstart remains bullish,
and its CEO, Dave Girouard, stated, “WeU+02019re eyes wide open to
the challenges of the current macroeconomy, and determined to make
the decisions that will optimize for the long-term success of
Upstart. With a healthy balance sheet, robust unit economics, and
strong pricing power, we believe that weU+02019re well positioned
to navigate an extended period of economic uncertainty while
continuing to invest strategically in future growth.”
Let’s see what impacted Upstart
in Q3 and if it can stage a comeback in the next year.
Is UPST stock a buy or a sell right now?
Unlike a traditional bank,
Upstart originates loans via its robust tech platform to near-prime
borrowers. It is quite optimistic about assessing credit quality
better compared to tried and tested methods such as the FICO credit
score. So, it also allows borrowers that are lower on the credit
spectrum to access loans and other lending products at competitive
rates.
But Upstart requires
institutional investors to fund its loans to meet rising demand
from borrowers. An extremely challenging macro environment is,
however, pushing investors away, thereby impacting top-line growth
for the company.
Upstart also partners with banks
that use its platform, but a majority of its loans are sold to
institutional investors. Right now, Upstart is not only constrained
by issues related to funding, but it has also seen a decline in
consumer demand for loans.
One metric used by the company is
the conversion on rate requests. It is the number of loan
transactions completed on loan requests received on the Upstart
platform, which has declined to 10% in Q3 from 13% in
Q2.
The Upstart platform is dynamic
and accounts for the possibility of an increase in loan defaults
due to rising interest rates. So, its annual percentage rates on
loans are also bound to increase. Upstart emphasized approval rates
for loan applicants fell by 40% in Q3 as default rates were up
70%.
What next for UPST stock price and
investors?
Valued at a market cap of $1.4
billion, UPST stock is priced at less than two times forward sales.
Shares of the company went public back at $20 in December 2020 and
touched
an all-time high
of $390 last October. It’s now
trading at $17.
Investors should expect UPST
stock to remain volatile until the economy recovers significantly,
allowing the company to expand its loan book at an accelerated
pace.
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