AI lending platform Upstart (NASDAQ:UPST) missed analysts' expectations in Q3 FY2023, with revenue down 16.1% year on year to $134.6 million. Next quarter's revenue guidance of $135 million fell short, coming in 14.3% below analysts' estimates. Turning to EPS, Upstart made a GAAP loss of $0.48 per share, improving from its loss of $0.69 per share in the same quarter last year.
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Upstart (UPST) Q3 FY2023 Highlights:
- Revenue: $134.6 million vs analyst estimates of $139.7 million (3.7% miss)
- EPS (non-GAAP): -$0.05 vs analyst estimates of -$0.02 (-$0.03 miss)
- Revenue Guidance for Q4 2023 is $135 million at the midpoint, below analyst estimates of $157.5 million
- Free Cash Flow was -$106.4 million, down from $162.3 million in the previous quarter
- Gross Margin (GAAP): 59.2%, down from 71.9% in the same quarter last year
Lending SoftwareBusinesses have come to use data driven insights to stratify their customers into more granular buckets that enable more personalized (and profitable) offerings. Lending software is a prime example of fintech democratizing access to loans in a still-profitable manner for financial institutions.
Sales GrowthAs you can see below, Upstart's revenue has been declining over the last two years, shrinking from $228.7 million in Q3 FY2021 to $134.6 million this quarter.
Upstart's revenue was down again this quarter, falling 16.1% year on year.
Next quarter, Upstart is guiding for a 10.9% year-on-year revenue decline to $135 million, an improvement on the 50.4% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 30.7% over the next 12 months before the earnings results announcement.
ProfitabilityWhat makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Upstart's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 59.2% in Q3.
That means that for every $1 in revenue the company had $0.59 left to spend on developing new products, sales and marketing, and general administrative overhead. Upstart's gross margin is poor for a SaaS business and it's deteriorated even further over the last year. This is probably the opposite direction that shareholders would like to see it go.
Key Takeaways from Upstart's Q3 Results Although Upstart, which has a market capitalization of $2.5 billion, has been burning cash over the last 12 months, its more than $516.6 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We struggled to find many strong positives in these results. Its revenue guidance for next quarter underwhelmed, its revenue missed Wall Street's estimates and the company burned through significant amount of cash. Overall, this was a mixed quarter for Upstart. The company is down 13.8% on the results and currently trades at $25.35 per share.
The author has no position in any of the stocks mentioned in this report.
