Upstart Holdings (NASDAQ:UPST)
Upstart Holdings (NASDAQ:UPST), a marketplace lending platform powered by artificial intelligence, released its quarterly results Tuesday after the market close. The steep increase in interest rates has devastated the firm, making it one of the most severely impacted by the change. As a direct consequence, the company’s loan volumes and income have significantly decreased. While the results for the fourth quarter were not as poor as anticipated, the projection for the upcoming quarter may cause shares to drop to new lows.
The firm recorded sales for the fourth quarter of almost $147 million, which is approximately 52% lower than the previous year’s sales. This number exceeded street predictions for $133 million, but remember that the analyst average has decreased by more than $50 million since the business announced its terrible projection in November. This figure did beat street estimates of $133 million. The adjusted loss per share of 25 cents surpassed the market’s consensus forecast by 22 cents per share thanks to the significant sales beat. On the other hand, the adjusted net loss for the period came in at $20.9 million, a significant decrease from the adjusted profit of $87.0 million recorded in the same quarter of the previous year. Furthermore, in the fourth quarters of 2021 and 2022, the corporation went from having a GAAP profit to having a GAAP loss.
A year ago, Upstart discussed the possibility of significantly expanding the number of bank partner originations. In the fourth quarter of 2021, the company’s partners generated about half a million loans, which is an increase of more than 300%. The total amount of these loans was more than $4 billion. After one year, everything has completely broken down as a direct result of the sharp increase in interest rates; just over 154,000 loans were made.
There will likely be no improvement in the company’s financial situation in the foreseeable future. The Federal Reserve continues to push for higher interest rates and is generally working toward a more restrictive monetary policy. Upstart’s management has projected that the company would bring in $100 million in sales for the current quarter, which began on January 1 and is already halfway through. Not only is this a decrease of over a third sequentially from the levels of the previous quarter, but it is also a significant decrease from the $156 million that the market was expecting. As a point of comparison, the first quarter of 2022 marked the record high for the company’s quarterly revenue, which came in at $310 million; nevertheless, only one year later, Upstart is aiming for around 68% less. The street was expecting a loss of just 18 cents per share, but the company has forecasted a loss of around 85 cents per share instead. This is many times worse.
The balance sheet is suffering as a consequence of the fact that the firm has just begun incurring a considerable amount of financial losses. The amount of cash on hand for the corporation dropped from $987 million at the end of 2021 to $422 million at the end of last year. The primary reason is that the amount of money held in loans for sale has increased from $252 million to more than 1 billion dollars. Hence, Upstart projected an annual cash burn from operations of about $675 million for 2022, which is much higher than the operational cash flow of $168 million that it had in 2021. In this challenging economic climate, the firm could absorb losses if compelled to sell some loans to maintain sufficient liquidity.
Back in November, when I looked at Upstart stock, the street was still a little favorable on the name of the company. The consensus on Wall Street was that the company was only worth $15 as of Tuesday, even though the average price target was more than $24, indicating a considerable upside from the levels at which it was trading. As a result of the awful advice, the analysts may reduce their estimates even more. During parts of the after-hours session, the share price traded lower than its 50-day moving average, which may have contributed to an increase in the amount of technical selling pressure.
On Tuesday, investors dumped Upstart stock at the end of the day because the company’s quarterly report did not create a positive image. While the results of the fourth quarter were better than expected, this was only because the projections were drastically lowered. The fact that the projection for the current quarter was far worse than even the most pessimistic analyst on the street demonstrates that the company is still experiencing a great deal of difficulty. As a result of the fact that the corporation is now beginning to post some significant losses, the rate at which cash is being burned is increasing, and share prices are currently just a few dollars above their all-time low.
Featured Image: Megapixl @ Rafaelhenriquepress
