Stock market investors haven't gotten much relief lately, although Tuesday morning appeared likely to provide at least a pause in the sharp downturn Wall Street has endured lately. As of 8 a.m. ET, futures contracts on the Nasdaq Composite (^IXIC 1.11%) finally managed to produce a modest bounce, rising 1.2% to 12,338.
What's notable about that gain is that it comes in the face of big premarket declines for some high-profile Nasdaq stocks. Both Upstart Holdings (UPST 0.96%) and GoodRx Holdings (GDRX -0.45%) saw their shares drop dramatically before the start of the regular trading session on Tuesday, as their latest financial reports weren't able to restore investor confidence in what lies ahead. Read on to learn more about what Upstart and GoodRx said and why shareholders are responding so negatively to the news.
Upstart deals with rising rates
Shares of Upstart Holdings lost more than 50% of their value in premarket trading Tuesday morning. The artificial intelligence (AI)-based lending platform provider reported first-quarter results that showed continued success in its business, but it also warned that rising interest rates could have an impact on its future growth.
The numbers from Upstart's first quarter looked strong. Revenue of $310 million was up 156% year over year. Transaction volume climbed to more than 465,500 loans totaling $4.5 billion in value, nearly tripling from year-ago levels. Adjusted net income also came close to tripling year over year to $58.6 million, producing adjusted earnings of $0.61 per share.
However, rising interest rates began to have an impact on Upstart's business, and that impact is likely to worsen for the fintech company during the remainder of 2022. Conversion rates fell from 22% a year ago to 21% in the first quarter of 2022, and Upstart now believes full-year 2022 will come in at $1.25 billion. That would still represent sales growth of more than 50% from 2021 levels, but investors had hoped for as much as $1.45 billion.
As interest rates rise, even Upstart's AI system won't prevent more borrowers from getting denied on loans they seek. Moreover, those who do get accepted will come with higher borrowing costs, which is likely to reduce conversion further. That's the conundrum that Upstart faces, and shareholders feel as if the company failed to give them as much advance warning as they wanted.
Image source: Getty Images.
GoodRx faces a big challenge
Meanwhile, shares of GoodRx Holdings were down 36% in premarket trading. The provider of lower-cost prescription drugs got a big jump in net income, but it warned of a key problem it will need to resolve if it wants to meet its guidance for 2022.
GoodRx continued to grow, albeit at rates that might have been slower than many investors would have preferred to see. Revenue rose 27% year over year to $203 million, while adjusted net income was higher by 30% to $41.3 million. That produced adjusted earnings of $0.03 per share. The number of consumers using GoodRx actively each month rose 12% to 6.4 million, while subscription plans jumped 29% to more than 1.2 million.
However, GoodRx warned that a key grocery chain had recently taken action that could have a material impact on acceptance of price discounts during the remainder of 2022. As a result, the company believes it's unlikely to achieve its 2022 guidance, and it chose not to try to offer amended full-year expectations because of the uncertainties surrounding the grocer issue.
At this point, GoodRx believes the situation is unique to this grocer, and it remains optimistic that some customers might go to other pharmacy providers. Although the grocer makes up fewer than 5% of the pharmacy locations covered by GoodRx, it represented nearly a quarter of its total revenue in the quarter, and that poses a longer-term threat for the company if it can't get the issue resolved.
