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By Upstart Holdings Inc.’s standards, its stock was showing a comparably mild response to a mixed earnings report Tuesday.
Shares of the company, which uses artificial intelligence to inform lending decisions, were off about 4% in choppy after-hours trading Tuesday after it posted a slimmer loss than expected for its latest quarter and beat revenue expectations, but also delivered an outlook that was far weaker than what analysts were anticipating.
Prior to this, Upstart shares
UPST,
had taken double-digit swings following seven of the company’s past eight earnings reports.
The company generated a fourth-quarter net loss of $55.3 million, or 67 cents a share, whereas it posted net income of $58.9 million, or 61 cents a share, in the year-prior quarter.
On an adjusted basis, Upstart lost 25 cents a share, whereas it earned 89 cents a share in the year-earlier fourth quarter. Analysts tracked by FactSet were anticipating a 47-cent loss per share after adjustments.
Upstart’s revenue fell by more than half, to $147 million from $305 million a year before, but it exceeded the FactSet consensus, which was for $134 million.
The company’s lending partners originated 154,478 loans in the quarter, totaling $1.5 billion, down 62% from the year-prior period.
“Reflecting back over the past year and on our outlook of a year ago, it’s safe to say that the macro has exceeded our most wildly bearish expectations,” Chief Financial Officer Sanjay Datta said on the earnings call, according to a transcript from AlphaSense/Sentieo.
He added that “the impact of change in income and consumption patterns on consumer delinquency proved greater than we could have predicted and the resulting contraction in the funding markets was sharp.”
That said, Datta said the company’s “internal measure of the macro impact on consumer defaults of Upstart-powered loans…has shown encouraging signs of stabilization in the early weeks of 2023.”
Upstart announced in late January that it planned to lay off about 20% of its staff amid a period when “many lenders and credit investors have significantly reduced or paused loan origination.”
Chief Executive David Girouard said Tuesday that management’s goal is “to return to profitability as soon as possible.”
See also: Upstart is ‘perhaps an idea ahead of its time’ but its stock is too volatile now, analyst warns
For the first quarter, Upstart executives anticipate $100 million in revenue. The FactSet consensus was for $158.6 million in revenue. Management also expects a loss of $45 million on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda), while the FactSet consensus was for a $13.2 million loss on the metric.
Datta noted on the earnings call that the outlook “reflects a higher forward assumption for UMI in our loan pricing, traditional Q1 seasonal headwinds, some further tightening from our funding partners that we have experienced coming into the year and the withdrawal of our own balance sheet as a funding source for new loans.”
UMI is the company’s metric that measures how macroeconomic changes affect credit performance.
Barclays analyst Ramsey El-Assal wrote following the call that while Upstart’s commentary on its profitability focus and its plans to limit balance-sheet lending were positives, the company still isn’t in the clear.
“While the ability to raise prices benefited UPST’s revenues earlier in the year, it would appear that the company may have less runway now to further increase pricing,” he wrote.
Mizuho’s Dan Dolev wrote that “weak guidance isn’t helpful, but we expect a mixed stock reaction as poor guide may ignite hopes of better-than-feared outcome.”
Shares of Upstart have come down sharply over the past 12 months, falling 84% over that span as the S&P 500
SPX,
has lost 7%.
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