Upstart Nearing Inflection Point? 2 Analysts Examine Opportunities And Challenges Post-Q1 Earnings

Upstart Holdings, Inc. UPST shares are trading lower after the company reported first-quarter financial results and issued second-quarter revenue guidance below estimates.

Upstart reported first-quarter revenue of $128 million, which beat the consensus estimate of $124.867 million.

The results came amid an exciting earnings season. Here are some key analyst takeaways.

• JPMorgan analyst Reginald L. Smith reaffirmed an Underweight rating with a price target of $24.00.
• Needham analyst Kyle Peterson reiterated a Hold rating on the stock.

Check out other analyst stock ratings.

JPMorgan: Upstart benefits from a powerful flywheel effect that creates a virtuous cycle, whereby greater repayment data leads to improved risk and fraud detection, which leads to higher approval rates and increased volume.

While retaining Underweight, Smith is incrementally positive, recognizing Upstart as arguably the name most levered to stable-to improving consumer credit and a rebound in 3rd party funding in the coverage universe, and appears to be nearing an inflection point. 

Banks and credit unions are working through liquidity challenges from FY23, and beginning to address asset shortages.

The analyst notes that short-duration, high-yielding personal loans are attractive, especially in times of heightened deposit costs. 

Upstart also continues to work with institutional capital partners and has a line of sight on $2.7 billion in committed capital over the next twelve months.

Overall, the analyst remains Underweight as shares appear overextended, particularly in light of weaker trends in the company’s UMI index. 

Needham: While the results were solid, the second quarter outlook was well-below consensus as poor credit performance from more affluent borrowers continues to be a drag on results, the analyst notes.

While disappointing, the analyst notes that the commentary is consistent with other digital lending peers and tracks the intra-quarter trends/data from the Upstart Macro Index (UMI). 

While the company’s near-term outlook is disappointing, the analyst does not view it as overly surprising given quarterly trends in the UMI as well as market expectations for a “higher for longer” rate environment. 

The analyst commends UPST for working to bolster its committed capital base which should help growth quickly snap back when operating conditions improve.

Price Action: UPST shares are trading lower by 5.97% to $23.01 at last check Wednesday.

Image: courtesy of Upstart