Shares of Upstart Holdings Inc. enjoyed their best daily performance in nearly a year Wednesday amid some hope that the once-hot lending company could soon turn a corner.
The company, which uses artificial intelligence in lending, has been on a rocky ride since making its public debut in late 2020. While Upstart UPST, +28.13% initially benefited during the pandemic as government stimulus funds helped loan performance, it’s struggled more recently as financial partners pump the brakes on loan originations.
Upstart posted a sharp drop in fourth-quarter revenue when it posted results Tuesday afternoon and gave a downbeat revenue forecast, though it also signaled that it was getting serious about a return to profitability.
The company’s broader commentary indicated to Loop Capital analyst Hal Goetsch that Upstart “is closer to the very end of a difficult period for participants on both sides of its platform.”
He had downgraded the stock to hold earlier in February, but he moved back to a buy rating after Tuesday’s report.
“Q4 and Q1 volume are not good, but we believe they will mark the low and return to sequential growth in Q2 thereafter,” Goetsch wrote.
He noted that the “demand side for loans is very high as core UPST consumers have jobs, yet are running out of savings and liquidity after several years of stimulus.” While some Upstart lending partners have pulled away, he thinks the company “is close to finding more permanent and consistent capital partners on its platform and alluded to this possibility on the call last night.”
Shares shot up 28% in Wednesday trading to post their largest single-day percentage gain since Feb. 16, 2022, when they rose nearly 26%.
Piper Sandler analyst Arvind Ramnani wrote that the buzz around ChatGPT and generative artificial intelligence could potentially serve as a “marketing tool” even though Upstart and ChatGPT “are in completely different categories” of AI.
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“We believe that UPST could see an increase in lending partners, as its AI-based model gains broader acceptance,” he wrote. “We remain optimistic on UPST in the longer term, but are sticking with our neutral rating until we see improvement in the funding environment.”
Wedbush’s David Chiaverini was more downbeat as he reiterated an underperform rating on the stock.
“Returning to profitability remains a top goal for the company, and while the 20% reduction in headcount should help, our current model assumes Upstart may not achieve GAAP profitability for another couple years.”
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