Upstart Reported Strong Q2, But Analysts Are Concerned About Short Interest And Profitability - Here's Why

Upstart Holdings, Inc. UPST shares are jumping today after it reported better-than-expected second-quarter financial results and issued third-quarter revenue guidance above estimates yesterday.

The company reported an EPS loss of $0.17, which beat the analyst consensus loss estimate of $0.39, and revenue of $128 million, which beat the analyst consensus estimate of $124.54 million.

For the third quarter of 2024, Upstart expects revenue of approximately $150 million vs. the $135.36 million estimate.

Piper Sandler analyst Arvind Ramnani maintained Upstart with a Neutral and raised the price target from $28 to $31.

The analyst says that the revised guidance for the second half of the year indicates 12% Q/Q growth in the third and 14% in the fourth quarter. The company stated that the macro environment is no longer a major barrier to its business. However, management noted that a rise in unemployment could present a risk, adds the analyst.

The analyst estimates CY25 revenue to be $683 million (up from $663 million) and projects revenue growth to be 10.2% in FY24 and 20.7% in FY25.

JMP Securities analyst David M. Scharf maintained a Market Perform rating due to factors such as limited visibility into positive GAAP earnings and uncertainty about reliance on new products.

With short interest at 30% of outstanding shares, the analyst notes UPST could benefit from near-term short covering.

While the company improved its cost structure in the quarter and anticipates further operating leverage when growth resumes, it is still not consistently GAAP profitable like other specialty finance lenders, adds the analyst.

Scharf increased 2024 Adjusted EBITDA loss estimates from $55 million to $31 million due to strong second-quarter results and higher expected revenue in the second half. Also, the analyst raised the estimate from $30 million to $38 million for FY25, driven by platform stabilization and improved operating leverage from recent cost management.

Apart from this, J.P. Morgan analyst Reginald L. Smith reiterated the Underweight rating and raised the price target from $24 to $27.

The analyst writes that Upstart has ample capital for near-term growth, with 50% from committed agreements, but faces borrower constraints. The strong quarter suggests it may be approaching a positive inflection point as it heads into 2025.

Smith says that the guidance does not account for macro improvements or rate cuts in 2024, and they revised the estimate for adjusted EBITDA to $33 million loss from $58 million loss for 2024 and $21 million (from $9 million) for 2025.

Goldman Sachs analyst Michael Ng reiterated the Sell rating, noting limited visibility into the company’s underwriting differentiation justifies its trading closer to its lending peers.

Nevertheless, the analyst raised 2025/26 net income estimates by an average of 9% to account for UPST’s improved conversion outlook with its new pricing model.

The analyst raised the price target price to $12 from $11.

Wedbush analyst David J. Chiaverini maintained an Underperform rating and a price target of $10.

The analyst writes that while the Upstart Macro Index (UMI) has improved slightly, other factors, such as the recent rise in unemployment and signs of consumer strain reflected in retailer guidance, may counterbalance this progress.

The analyst says that they remain concerned about the company’s GAAP profitability and expect GAAP losses for several quarters due to stock-based compensation, which is included in GAAP but excluded from adjusted EBITDA.

Also, Citigroup analyst Peter Christiansen upgraded Upstart from Sell to Neutral and increased the price target from $15 to $33.

Investors can gain exposure to the stock via Tidal Trust II YieldMax Ultra Option Income Strategy ETF ULTY and First Trust Nasdaq Artificial Intelligence and Robotics ETF ROBT.

Price Action: UPST shares are up 50.73% at $35.98 at the last check Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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