What happened
Shares of Upstart (UPST 3.90%) plunged 56% on Tuesday after the artificial intelligence-powered lending platform slashed its full-year growth forecast.
So what
Upstart's revenue soared 156% year over year to $310 million in the first quarter. The fintech company's banking partners originated 174% more loans on its platform. Those 465,537 loans totaled $4.5 billion.
Upstart's operating income, in turn, surged 123% to $34.8 million. Its net income, meanwhile, more than tripled to $32.7 million, or $0.34 per share.
"Upstart just delivered our seventh consecutive profitable quarter and our fourth straight quarter with triple-digit year-on-year revenue growth," CEO Dave Girouard said in a press release.
Image source: Getty Images.
That growth, however, is likely to slow. Upstart cut its full-year revenue forecast from approximately $1.4 billion to roughly $1.25 billion. During a conference call with analysts, Girouard warned that the Federal Reserve's plan to tame inflation by raising interest rates could dent Upstart's transaction volumes.
"In addition to increasing rates for approved borrowers, this also has the effect of lowering approval rates for applicants on the margin," Girouard said.
Now what
Worse still, borrower default rates appear to be deteriorating now that pandemic-related stimulus measures have largely run their course.
"After remaining at historically low levels for the past 18 months, loan default rates rose quite abruptly toward the end of last year and are now back to, or in some cases, above pre-pandemic levels," chief financial officer Sanjay Datta said.
Moreover, analysts are worried that the lending market could continue to worsen in the coming months, particularly if the economy falls into a recession.
