In this photo illustration, the Upstart Holdings logo is displayed on a smartphone screen.
Pavlo Gonchar | SOPA Images | Light rocket | Getty Images
Actions of Start It collapsed Tuesday after the AI lending platform slashed its full-year revenue prospects, citing rising interest rates and an uncertain economy.
The company had sued better than expected first quarter results Monday after the bell, it also cut its 2022 revenue forecast to $ 1.25 billion from a previous estimate of $ 1.4 billion.
Upstart expects second-quarter revenue to be between $ 295 million and $ 305 million, while analysts interviewed by Refinitiv projected an average of $ 335 million.
The stock plunged 59% around 10:45 am ET. The trade was briefly stopped shortly after the US markets opened.
“Given general macro uncertainties and the emerging prospect of a recession by the end of the year, we felt it prudent to reflect a higher degree of conservatism in our future expectations,” CFO Sanjay Datta said on Monday’s earnings call. Upstart.
The company, which uses artificial intelligence to assess creditworthiness, said rising interest rates are hurting the volume of lending.
“In addition to raising rates for approved borrowers, this also has the effect of lowering approval rates for margin applicants,” CEO David Girouard said of the earnings claim.
Emerging management indicated further economic challenges ahead as the Federal Reserve continues to raise rates and cut its balance sheet to crack down on persistent inflation.
“Given the Fed’s aggressive signals, we expect prices to rise even higher by the end of the year, which will have the effect of reducing the volume of our transactions, all things being equal,” Girouard added.
Furthermore, the company noted defaults of the borrower they are normalizing. During the pandemic, debit and default rates hit decades-long lows due to government aid and stimulus programs.
“After staying at historically low levels for the past 18 months, loan default rates have risen quite sharply towards the end of last year and are now back or in some cases above pre-pandemic levels,” Datta said. .
Upstart received a series of downgrades from Wall Street analysts at Piper Sandler, Citigroup and Stephens following the quarterly report.
On Tuesday, Piper Sandler analyst Arvind Ramnani downgraded the stock to a neutral overweight rating and cut the stock’s target price to $ 44 from $ 230. The new price projection implies a 75% drop from the stock price. Upstart closes on Monday.
“The range of results for UPST has increased, given the macro uncertainties,” Ramnani said in the statement. “We anticipate that there could be further declines based on the speed and intensity of a recession.”