Shares of Upstart were falling more than 54% Tuesday after the artificial-intelligence lending company slashed its full-year revenue outlook, noting the possibilities of a recession.
Upstart (ticker: UPST) said it expects revenue in 2022 of about $1.25 billion, down from its previous forecast of $1.4 billion. The company said revenue in its second quarter will be about $295 million to $305 million, below Wall Street forecasts of $335 million.
“While this year is shaping up to be a challenging one for the economy, we know the drill and are confident that we can navigate whatever 2022 and beyond might hold,” said Chief Executive Dave Girouard in a press release.
The CEO noted on the company’s conference call the aggressive moves by the Federal Reserve to cool inflation by raising interest rates.
“Given the hawkish signals from the Fed, we anticipate prices will move even higher later this year, which will have the effect of reducing our transaction volume, all else being equal,” Girouard said.
Upstart Chief Financial Officer Sanjay Datta also highlighted rising interest rates and said higher inflation and monetary tightening from the Fed implied “the non-trivial risk of a recession potentially later this year.”
“Given the general macro uncertainties and the emerging prospect of a recession later this year, we have deemed it prudent to reflect a higher degree of conservatism in our forward expectations,” Datta added.
Upstart reported first-quarter adjusted earnings of 61 cents a share, beating forecasts of 53 cents, and revenue of $310.1 million, higher than estimates of $300 million.
Analysts at Citi downgraded the stock to Neutral from Buy, and cut the price target to $50 from $180.
“Upstart’s AI seems to outperform in stable-to-benign credit conditions, though it’s evident now (compressed conversion) the platform takes time to adjust to deteriorating macro,” the analysts wrote in a research note. “Key questions now are (i) will consumer credit worsen vs. pre-Covid, (ii) will funding sources temper their appetite, and (iii) did Upstart cut its outlook enough?”
Jefferies analysts rate Upstart shares at Hold. They reduced the price target on the stock to $65 from $85, saying that new growth for Upstart, “which is projected to come from its recently launched auto lending product” also was seeingheadwinds.
Piper Sandler downgraded the stock to Neutral from Overweight and drastically reduced the price target to $44 from $230. The analysts said overall loan volumes at Upstart “are expected to decline, given elevated loan rates (and the likelihood of them being moved higher).”
“We expect there could be further downside based on the speed and intensity ofa recession,” Piper Sandler analysts added in a note.
Upstart shares fell 54.2% to $335.29 on Tuesday. The stock has declined almost 77% in 2022.
Write to Joe Woelfel at email@example.com