Upstart Holdings stock was 23% lower in premarket trading Wednesday.
Dreamstime
Upstart Holdings stock tumbled more than 20% in premarket trading Wednesday despite the artificial-intelligence lending company’s quarterly earnings beating expectations.
The stock, which made its debut on the Nasdaq late last year, has climbed 670% year-to-date as of Tuesday’s close. But the reaction to the company’s third-quarter earnings hinted that the stock’s rally may be coming to an end.
When it comes to earnings, it was more of the same in the third quarter as the company posted strong revenue growth and better-than-expected guidance. Upstart (ticker: UPST) reported revenue of $228.5 million in the three months to Sept. 30, a 250% increase from 2020 and ahead of the FactSet analysts’ consensus for $215 million. Adjusted earnings per share of $0.60 beat estimates of $0.33.
Fourth-quarter guidance also came in above expectations. The company, which uses artificial intelligence to inform lending decisions, sees revenue of $255 million to $265 million in the final quarter of the year and adjusted Ebitda of $51 million to $53 million, both ahead of estimates.
But Jefferies analysts, led by John Hecht, said that the market was expecting even more and the stock’s upside now appears more limited.
“Based on larger increases and operating leverage in recent quarters, we believe expectations for the remainder of the year were for a greater beat and raise,” they said.
They also attributed most of the revenue beat to fair value adjustments of $18 million, more than its own estimates of $8.7 million, while the forward guidance suggested “likely cost increases in order to maintain growth.”
“Similar to recent quarters, Upstart showed strong year-on-year revenue growth and market share trajectory, and similarly increased guidance. That said, incremental upside appears lower now given normalizing credit and increasing competition for these loans,” they added.
Write to Callum Keown at [email protected]
