- Upstart Holdings shares cratered over 50% Tuesday after the fintech company cut its yearly revenue outlook.
- The consumer lender flagged inflation pressures and recession risk in reducing its projection.
- Upstart expects 2002 revenue of $1.25 billion compared with its previous view of $1.4 billion.
Shares of Upstart Holdings, a consumer lending platform that uses AI to determine creditworthiness, plunged Tuesday as the company cut its full-year revenue projection and flagged a gloomier outlook for the broader economy.
The shares tumbled 57% to $32.95 in premarket action, hitting prices not seen since December 2020 when the company's shares began trading. Shares pared the loss slightly to 52% after the opening bell. The stock a year ago closed at $88.21.
The stock dropped as the company late Monday reduced its full-year 2022 revenue projection to $1.25 billion from its previous projection of about $1.4 billion.
"The combination of inflation and monetary tightening imply the non-trivial risk of a recession potentially later this year. Given the general macro uncertainties and the emerging prospects of a recession later this year, we have deemed it prudent to reflect a higher degree of conservatism in our forward expectations," Sanjay Datta, Upstart's chief financial officer, said during 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 tamp down on inflation. Inflation in March soared to a 41-year high of 8.5%, and the Fed is expected to push its key rate to at least 2.75% by the end of 2022. The Fed running up borrowing costs quickly has stoked concerns about the world's largest economy tipping into a recession.
Upstart said the average loan pricing on its platform has increased more than 300 basis points since October as a result of increased risk in the economy and the corresponding higher returns demanded by banks and credit investors.
"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," Dave Girouard, chief executive officer at Upstart, said late Monday.
Girouard also said when consumer rates go up, "that means on the margin, a whole bunch of people that would have been approved are no longer approved. So there's a whole bunch of just loans that never happened at all. And there's a bunch of people that 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 that they want. They don't need it."
Upstart forecast second-quarter revenue of $295 million to $305 million, which was below the FactSet consensus estimate of $335 million.
The company did turn in first-quarter results that surpassed analysts targets. Revenue more than doubled to $310.1 million, outstripping expectations of $300 million. Adjusted earnings also more than doubled to $0.61 a share, higher than Wall Street's view of $0.53 a share.
