After disappointing investors in May with its projections, Upstart Holdings Inc. (NASDAQ:UPST) is now facing Wall Street’s wrath again after admitting on Thursday that it fell far short of expectations. Late on Thursday, Upstart revealed that executives anticipate second-quarter losses and revenue to fall well short of the targets they had predicted in May. The company’s disappointing prediction caused shares to drop by more than half in a single session. Following the release of preliminary results, the company’s shares fell more than 14% in the after-hours trading on Thursday.
Upstart, a platform that lends money while using artificial intelligence to make loan choices, disclosed that revenue for the second quarter is now estimated to be about $228 million. According to FactSet, Before Upstart provided guidance, analysts had projected second-quarter sales of $335 million; they have since revised their estimates to $298 million.
After executives originally guided breakeven to a loss of $4 million, the loan company’s second-quarter loss is now anticipated to be between $27 and $31 million. Despite that forecast, analysts surveyed by FactSet still anticipated Upstart to make a meager profit of less than $1 million, down from expectations of $24 million before the outlook.
In an interview, Chief Executive Officer Dave Girouard said, “Our revenue was negatively impacted by two factors approximately equally. First, our marketplace is funding-constrained, largely driven by concerns about the macroeconomy among lenders and capital market participants. Second, in Q2, we took action to convert loans on our balance sheet into cash, which, given the quickly increasing rate environment, negatively impacted our revenue.”
Upstart: Going Public
In December 2020, Upstart went public, offering the first batch of its shares at $20 each. Although the stock debuted at $26 on the first day of trading and finally rose to more than $400 last fall, it has never traded so low on the open markets. Those advantages have vanished. Upstart shares plunged more than 56 percent in a single session following its May results report and forecast, then dropped another 16.7% the following day to reach a 52-week low of $25.43.
Despite a slight recovery since then, when shares occasionally reached $50 in June, they closed Thursday at $33.74 and were trading for less than $29 in extended trading after the report. Through Thursday’s close, shares have fallen 77.7% this year, while the S&P 500 index SPX, +1.50%, has declined 18.1%. On August 8, executives anticipate fully disclosing second-quarter financial results. Upstart Holdings, Inc. (NASDAQ:UPST), a global marketplace for lending powered by artificial intelligence (AI), today released its preliminary unaudited financial results for the second quarter that ended on June 30, 2022. Additionally, Upstart disclosed that its fiscal year 2022 final second-quarter business and financial results would be released on August 8 after the market closed.
According to Dave Girouard, co-founder and CEO of Upstart, “inflation and recession fears have driven interest rates up and put banks and capital markets on cautious footing.” According to Dave, revenue was impacted negatively by two variables roughly equally. First, our industry has a funding constraint, primarily caused by lenders’ and capital market participants’ worries about the macroeconomy. Second, given the context of rapidly rising rates, we took steps in Q2 to convert loans on our balance sheet into cash, which affected our revenue.
He concluded, “During the second quarter, we improved our unit economics and oriented ourselves toward continued positive cash flow even at lower loan origination volumes. With a low fixed cost base, we expect to continue adding to our almost $800 million unrestricted cash balance as well as to continue repurchasing Upstart shares as it makes sense. And finally, despite limiting hiring to critical areas, we continue to invest in our models and products and are confident Upstart will emerge from this cycle a stronger company.”
Featured Image: DepositPhotos © SIphotography
