Upstart drops 52% as consumer lending platform flags recession risks and cuts full-year outlook

  • Assets received stocks cratered more than 50% on Tuesday after the fintech company has reduced its annual revenue outlook.
  • The consumer lender signaled inflationary pressures and the risk of recession by lowering its projection.

Shares of Upstart Holdings, a Consumer credit platform that uses AI to determine creditworthiness, plunged on Tuesday as the company slashed its full-year revenue forecast and signaled a bleaker outlook for the whole economy.

Shares fell 57% to $32.95 in premarket action, hitting prices not seen since December 2020, when the company’s shares began trading. Shares trimmed the loss slightly to 52% after the opening bell. The stock a year ago closed at $88.21.

The stock fell as the company slashed its full-year 2022 revenue projection Monday night to $1.25 billion from its previous projection of around $1.4 billion.

“The combination of inflation and monetary tightening carries the non-negligible risk of a recession potentially later this year. Given the general macroeconomic uncertainties and the emerging prospects of a recession later this year, we considered it prudent to reflect a higher degree of conservatism in our expectations,” Upstart CFO Sanjay Datta said on the company’s conference call, according to a transcript.

The Federal Reserve since March, has raised its benchmark interest rates by 75 basis points, from the ultra-low range of 0% to 0.25%, in a bid to reduce inflation. Inflation in March hit a 41-year high of 8.5%, and the Fed is expected to raise its key rate to at least 2.75% by the end of 2022. The rapid rise in borrowing costs of the Fed fueled concerns about the world’s largest economy. fall into a recession.

Upstart said the average price of loans on its platform has risen more than 300 basis points since October due to increased risk in the economy and corresponding higher yields demanded by banks and credit investors.

“Given the hawkish signals from the Fed, we expect prices to rise further later this year, which will reduce our trading volume, all things being equal,” said Dave Girouard, chief executive of ‘Upstart, Monday night.

Girouard also said that when consumer rates go up, “it means that at the margin, a whole bunch of people who would have been approved are no longer approved. So there’s a whole bunch of loans that never got products at all. And there’s a bunch of people who are still approved, but the interest rate is a few percentage points higher, and a certain fraction of them are going to decide that’s not the product they want. They don’t need it.

Upstart forecast second-quarter revenue of $295 million to $305 million, which was below FactSet’s consensus estimate of $335 million.

The company released first-quarter results that beat analysts’ expectations. Revenue more than doubled to $310.1 million, beating expectations of $300 million. Adjusted earnings also more than doubled to $0.61 per share, above Wall Street’s view of $0.53 per share.

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