Upstart Holdings Inc., a lending company that utilizes artificial intelligence in its lending decisions, experienced a decline in its stock value after disappointing earnings outlook for the current quarter. The company’s stock dropped by 18% in after-hours trading on Tuesday. Upstart’s projection for the first quarter indicates around $125 million in revenue, falling short of analysts’ expectations of $152.3 million.
Additionally, Upstart anticipates a loss of $25 million based on earnings before interest, taxes, depreciation, and amortization (EBITDA). This contrasts with the FactSet consensus of approximately $5 million in adjusted EBITDA. Chief Financial Officer Sanjay Datta explained during the earnings call that the company is adopting a more cautious approach in its underwriting of borrowers with higher credit scores. The weak outlook and management’s observation of weaker credit performance among prime borrowers are likely to delay Upstart’s turnaround story, according to Barclays analyst Ramsey El-Assal.
Despite the disappointing outlook, some positive aspects can be found in Upstart’s latest results. Piper Sandler’s Arvind Ramnani noted that nearly 90% of the company’s unsecured loans are now fully automated, and approval rates for its small-dollar loans have tripled. Ramnani believes that these enhancements will improve Upstart’s competitive advantage when the macroeconomic environment becomes healthier. However, he acknowledges that Upstart operates in a persistently uncertain and challenging environment.
In the fourth quarter, Upstart recorded a net loss of $42.4 million, or 50 cents per share, compared to $55.3 million, or 67 cents per share, in the same quarter of the previous year. On an adjusted basis, the company reported a loss of 11 cents per share, aligning with analysts’ consensus view. Upstart’s revenue dropped to $140.3 million from $146.9 million year-over-year, slightly surpassing the FactSet consensus of $134.8 million.
CEO Dave Girouard referred to the company’s latest results as “solid” but acknowledged the challenges faced by Upstart and the lending industry throughout 2023. He expressed relief at leaving that year behind.
Upstart’s stock has experienced significant volatility, with a doubling in value over the past 12 months but a steep decline of approximately 90% from its all-time high of $390 in October 2021.
Overall, Upstart’s disappointing earnings outlook and weaker credit performance among prime borrowers have raised concerns about the company’s ability to recover. However, there are positive developments in terms of automation and approval rates for small-dollar loans. Upstart’s management remains optimistic about the company’s future prospects despite acknowledging the challenging environment in which it operates. Investors will be closely monitoring the company’s performance and its ability to navigate through these difficulties in the coming quarters.
