What Happened: Shares of AI lending platform Upstart (NASDAQ:UPST) fell 20.2% in the morning session after the company reported third quarter results that missed analysts' revenue and EPS estimates. In addition, gross margin declined, and the company continued to burn cash. Guidance was also weak, as the revenue outlook for the next quarter fell below Consensus estimates. Upstart highlighted several factors driving the weakness, including challenging consumption patterns driven by unsustainable real consumption levels, lagging incomes despite increased labor participation, persistently low savings rates, and elevated borrower default trends.
As a result, Upstart expects that its business growth will mainly rely on model upgrades and enhanced underwriting accuracy until the macro environment improves. Overall, it was a weak quarter and one that may change the investment thesis for many investors altogether.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Upstart? Find out by reading the original article on StockStory.
What is the market telling us: Upstart's shares are very volatile and over the last year have had 86 moves greater than 5%. But moves this big are very rare even for Upstart and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was six months ago, when the stock gained 35.6% on the news that the company reported first quarter results that exceeded analysts' revenue, adjusted EBITDA, and earnings per share (EPS) estimates. However, the company continued to burn cash. Revenue guidance for the next quarter came in above Consensus and the company expects adjusted EBITDA to be nearly breakeven, which is a major milestone. What makes the company unique in the SaaS space is its exposure to lending. Given recent failures and other difficulties in the banking sector, there was added uncertainty coming into this quarter. Management addressed these concerns by providing positive commentary that "despite macro challenges, we secured multiple long-term funding agreements, together expected to deliver more than $2 billion to the Upstart platform over the next 12 months."
Upstart is up 69.1% since the beginning of the year, but at $22.01 per share it is still trading 69.5% below its 52-week high of $72.09 from July 2023. Investors who bought $1,000 worth of Upstart's shares at the IPO in December 2020 would now be looking at an investment worth $739.74.
