Upstart Holdings Inc. disappointed investors with its guidance in May, and faces Wall Street’s wrath once again after admitting Thursday it came up well short of the mark.
Upstart UPST, +1.96% disclosed late Thursday that executives expect second-quarter losses and revenue to come in well short of targets they forecast in May, when the company’s disappointing forecast led to shares being cut by more than half in a single session. After disclosing preliminary results, shares dove more than 19% in premarket trading Friday.
Upstart, which lends money while leveraging artificial intelligence to make loan decisions, revealed that revenue for the second quarter is now expected to be roughly $228 million, after originally guiding for sales of $295 million to $305 million. Analysts had been estimating second-quarter sales of $335 million before Upstart provided guidance, and had since brought down that target to $298 million, according to FactSet.
“Our revenue was negatively impacted by two factors approximately equally,” Chief Executive Dave Girouard said in a prepared statement. “First, our marketplace is funding-constrained, largely driven by concerns about the macroeconomy among lenders and capital market participants. Second, in Q2, we took action to convert loans on our balance sheet into cash, which, given the quickly increasing rate environment, negatively impacted our revenue.”
The lending company’s second-quarter loss is now expected to be $27 million to $31 million, after executives previously guided for breakeven to a loss of $4 million. Analysts polled by FactSet still expected Upstart to produce a small profit of less than $1 million despite that guidance, a reduction from expectations of $24 million in profit before the guidance.
“From a bottom line perspective, the net income loss is worrisome,” wrote Piper Sandler analyst Arvind Ramnani. “This will be the first quarter that the company is posting a GAAP [generally accepted accounting principles] operating loss since going public.” The last quarterly GAAP net loss was for the June quarter of 2020, when Upstart was still private.
Upstart went public in December 2020, pricing its initial batch of shares at $20 apiece. The stock has never traded that low on the public markets. It opened at $26 on the first day of trading and eventually moved as high as more than $400 last fall.
Those gains have all but disappeared. After its May earnings report and forecast, Upstart shares dove more than 56% in a single session, then fell another 16.7% the following day to hit a 52-week low of $25.43.
Shares have bounced back a bit since, topping $50 at times in June, but they closed Thursday at $33.74, and premarket trading Friday implied following the news implied an open below $28. Shares have declined 77.7% so far this year through Thursday’s close, as the S&P 500 index SPX, +1.50% has declined 18.1%.
“In our view Upstart is likely to remain in the penalty box for multiple quarters, as this is the second consecutive cut,” wrote Ramnani. “Investor interest on UPST on the long-side has diminished over the past several months, and with these results we expect that trend to continue until the company can get back to a cadence of stable expectations vs. results.”
The rare positives in the report, in his view, were that Upstart now expects a 47% contribution margin for the June quarter, versus its prior expectation of 45%, and that “UPST-powered loans have performed modestly above expectations.” He noted the company’s disclosure that loan vintages from 2018 to 2020 have delivered “excess returns” while the 2021 vintage is within 100 basis points (1 percentage point) of Upstart’s loss expectations.
Executives expect to fully report second-quarter financial results on Aug. 8.