Upstart’s stock dropped sharply on Tuesday after the artificial intelligence lending platform lowered its full-year revenue forecast, citing higher interest rates and an uncertain economy as reasons.

The company posted better-than-expected first-quarter results after the bell on Monday, but it also lowered its sales prediction for 2022 from $1.4 billion to $1.25 billion.

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Upstart predicts revenue of $295 million to $305 million in the second quarter, while analysts polled by Refinitiv expected $335 million on average.

The stock fell 56.4 percent to $33.61 per share on Tuesday. Upstart is down 91.6 percent from its October high of $401.49 per share.

On Upstart’s results call Monday, CFO Sanjay Datta said, “Given the general macro uncertainty and the rising likelihood of a recession later this year, we have felt it reasonable to reflect a higher degree of prudence in our future estimates.”

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Increasing interest rates are affecting loan volume, according to the business, which employs artificial intelligence to assess creditworthiness.

On the earnings call, CEO David Girouard said, “In addition to increasing rates for approved borrowers, this has the effect of lowering approval rates for applicants on the margin.”

As the Federal Reserve continues to boost rates and shrink its balance sheet to combat persistent inflation, upstart management predicted more economic challenges ahead.

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“Given the Fed’s hawkish signals, we expect prices to rise considerably higher later this year, limiting our transaction volume, everything else being equal,” Girouard added.

Borrower defaults are also normalizing, according to the company. During the pandemic, government help and stimulus measures lowered charge-off and delinquency rates to decades-low levels.

“Loan default rates jumped unexpectedly towards the end of last year, after remaining at historically low levels for the previous 18 months, and are now back to or, in some cases, above pre-pandemic levels,” Datta added.

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Following the quarterly report, Wall Street analysts at Goldman Sachs, Piper Sandler, Citigroup, and Stephens all downgraded Upstart.

On Tuesday, Piper Sandler analyst Arvind Ramnani downgraded the company from overweight to neutral and lowered his price objective from $230 to $44. The revised price forecast suggests a 75% drop from Upstart’s Monday closing price.

“Given macro concerns, the range of UPST outcomes has widened,” Ramnani wrote in the note. “Based on the speed and depth of a recession, we believe there might be more downside.”

 

KEY CONCEPTS
  • Upstart’s stock dropped sharply on Tuesday after the AI consumer loan platform lowered its full-year revenue forecast.
  • The company cut its sales forecast for 2022 from $1.4 billion to $1.25 billion.
  • Rising interest rates and the likelihood of a recession were mentioned by Upstart, which employs artificial intelligence to assess creditworthiness.

 

We were the ones that uncovered this information. The reader should be aware that we obtained this information from journalists and other online sources, as well as our correspondents and other jeanue sources.

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