Upstart Holdings
From these lofty levels, shares dropped more than 90% before its recent, 50% bounce from very oversold levels at the end of the week. Upstart's business had natural appeal to inventors due to its use of AI models to make lending decisions which it believes has better performance than traditional credit scores. It's also demonstrated impressive growth as it added new banks and revenue streams. The company also has high margins, since it doesn't take credit risk.
Inside the Numbers
In Q1, Upstart reported $32 million in net income and $310 million in revenue. These were above analysts' estimates and were 217% and 156% above last year's figures, respectively. In Q1, the company originated 466,000 loans on the platform, a 156% increase from last year.
One factor weighing on shares was the company's weaker than expected Q2 guidance of between $295 million and $305 million. This was below analysts' expectations of $335 million in revenue.
It also sees between breakeven and a loss of $4 million in net income for the quarter which also disappointed investors. For the full year, it reduced its revenue guidance to $1.25 billion from $1.4 billion. It attributed this to higher rates which are negatively impacting loan demand and approvals.
Another question for investors is whether Upstart should be valued like a tech company or a financial company. At the start of the year, it was valued as a tech company due to its use of AI models to potentially make better loans. Now, investors are more focused on the company's slowing growth rate and the impact of a weaker economy as many loans will likely go bust.
The company also noted that defaults were at historically low levels in 2021 but are not moving back towards more typical levels in 2022.
