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Actions of
Upstart
were down almost 60% on Tuesday after the artificial intelligence lending company cut its full-year earnings outlook, signaling the chances of a recession.
Upstart (ticker: UPST) said it expects 2022 revenue of around $1.25 billion, down from its previous forecast of $1.4 billion. The company said revenue for 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 year for the economy, we know the exercise and are confident that we can navigate whatever 2022 and beyond throws at us,” Chief Executive Dave Girouard said in a press release.
The CEO noted in the company’s conference call the Federal Reserve’s aggressive moves to cool inflation by raising interest rates.
“Given the aggressive signals from the Fed, we anticipate prices to rise further later this year, which will have the effect of reducing our trading volume, all things being equal,” Girouard said.
Upstart CFO Sanjay Datta also highlighted rising interest rates, saying higher inflation and Fed tightening posed “the non-trivial risk of a recession potentially later this year.”
“Given general macroeconomic uncertainties and the emerging prospect of a recession later this year, we have deemed it prudent to reflect a greater degree of conservatism in our future expectations,” added Datta.
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.
Citi analysts downgraded the stock to Neutral from Buy and lowered the price target to $50 from $180.
“Upstart AI appears to outperform under stable to benign credit conditions, although it is now apparent (conversion compressed) that the platform is slow to adapt to macroeconomic deterioration,” the analysts wrote in a research note. “The key questions now are (i) will consumer credit worsen compared to pre-Covid, (ii) will funding sources temper their appetite, and (iii) has Upstart lowered its outlook enough?”
Jefferies analysts rate Upstart stock at Hold. They lowered the share price target to $65 from $85, saying Upstart’s new growth, “projected to come from its recently launched auto loan product,” was also experiencing headwinds.
Piper Sandler downgraded the stock to Neutral from Overweight and sharply lowered the price target to $44 from $230. Analysts said overall lending volumes at Upstart are expected to “decrease, given elevated lending rates (and the likelihood of them increasing).”
“We expect there may be more downside depending on the speed and intensity of a downturn,” analysts at Piper Sandler added in a note.
Shares of the upstarts fell 59.7% to $31.10 on Tuesday. The stock is down almost 77% in 2022.
Email Joe Woelfel at [email protected]
Reference-www.barrons.com