What happened
Shares of Upstart (UPST 0.73%) stumbled out of the gate on Wednesday and never regained their footing. The stock price plunged as much as 23.5% in early trading but eventually ended the day down 18.2%.
The catalyst that sent the AI-based lending platform lower was third-quarter financial results that far exceeded expectations, combined with an impressive increase of its full-year forecast. While it might not make sense on the surface, it's all about context.
So what
Upstart reported revenue of $228 million, up 250% year over year, while total fee revenue clocked in at $210 million, an increase of 235%. This resulted in adjusted earnings per share (EPS) of $0.60.
To give those numbers context, analysts' consensus estimates were calling for revenue of $214.9 million and adjusted EPS of $0.33.
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Other metrics were equally mind-boggling. Upstart's banking partners originated 362,780 loans worth $3.13 billion, up 244% year over year. Conversion rates also soared, climbing to 23%, up from 15% in the prior-year quarter. Contribution profits of $95.9 million surged 184%, though a contribution margin of 46% slipped, compared to 54% in the year-ago quarter.
Now what
With the release of its fourth-quarter forecast, Upstart effectively raised its full-year guidance, though it wasn't implicit in the earnings report. Adding the Q4 outlook to the results for the first nine months of this year, Upstart is guiding for full-year revenue of roughly $803.7 million at the midpoint of its guidance, an increase of more than $50 million from the $750 million it estimated just three months ago.
Given the company's solid beat and raise, why was the stock price down 18%?
It's important to remember that going into today's earnings report, Upstart stock had gained 965% over the past year. Even after today's drubbing, the stock is still up an incredible 771%. Additionally, the stock isn't cheap by any stretch of the imagination, with a price-to-sales (P/S) ratio of 48 -- even after today's decline.
Investing is a marathon, not a sprint. When Upstart investors look back years from now, today's drop will probably seem like nothing more than a bump in the road.
