High Interest Rates Bad News For Upstart And Affirm — What Investors Need To Know Ahead Of Earnings

With consumers becoming more aware of their spending habits in times of economic contraction and rising prices, companies built around personal lending can expect to experience hard times.

Upstart Holdings Inc UPST and Affirm Holdings Inc AFRM are releasing their quarterly earnings reports after the market close on Tuesday, and investors are expecting to see how mid-year hikes on interest rates are affecting the consumer debt market.

Upstart Holdings

Shares of artificial intelligence credit information platform Upstart were rising on Tuesday ahead of the company’s Q3 earnings report, which will be released at 4:30 pm EST.

The stock was up 2.09% at $19.01 at the time of this writing, even though most analysts downgraded the company’s one-year price target after the last earnings call.

The company is projected to report a quarterly loss at $0.08 per share on revenue of $169.42 million.

On Oct. 25, Benzinga’s options scanner picked up on 13 uncommon options trades for Upstart, meaning that some whales are becoming bearish on the stock.

On that same day two weeks ago, Mizuho Securities analyst Dan Dolev initiated coverage of Upstart Holdings with an Underperform rating and a price target of $17. 

The overall macroeconomic environment is weighing on Upstart. With interest rates rising at an unprecedented pace, the market for personal finance products is taking a hit.

The company’s low-quality borrowers and rising delinquencies, due to high-interest rates and inflation, will likely continue to weigh on the supply of funds, Dolev said in his initiation note.

“Assuming the macroeconomic environment will worsen over the coming 12-18 months, we believe it is unlikely that funding for UPST will reopen en masse anytime soon,” he added.

Also Read: Is It Time To Buy Amazon, Google Amid Recent Dip? What Cramer Has To Say

Affirm Holdings

Consumer lending platform Affirm will also release earnings for Q1 on Tuesday, which led to a good day for the company’s stock in anticipation for the event.

Shares of AFRM were up 2.30% at $25.99 at press time.

The company, which operates as a lender for consumers to finance a purchase at the point of sale, has been enjoying better analyst ratings than Upstart with most maintaining either Buy or Overweight ratings since August.

Price targets have been lowered, however, in recent analyst reports. Last month, Andrew Jeffrey from Truist Securities lowered Affirm’s one-year price target from $45 to $35.

Affirm’s success is largely dependent on healthy consumer spending rates with its “Buy Now, Pay Later” model. The current macroeconomic environment of high inflation and economic contraction is also taking a toll on Affirm’s shares.

Last week, the company’s stock price was affected by Amazon’s earnings report, which reported worse-than-expected third-quarter sales results.

Shutterstock image.