What happened
Several fintech stocks jumped today, finally getting some relief after facing an intense sell-off all week. Others are rising from earnings results.
Shares of the artificial intelligence lender Upstart Holdings (UPST -0.58%) and the buy now, pay later company Affirm Holdings (AFRM 0.91%) traded nearly 16% higher as of 1:18 p.m. ET. Digital financial services company MoneyLion (ML 0.04%) had shot up more than 31%.
So what
MoneyLion this morning reported a small profit in the first quarter of 2022 on total revenue of close to $70 million, both numbers that soundly beat analyst estimates. Furthermore, the company added another 600,000 customers in the quarter and now has a total of 3.9 million. MoneyLion also continued to grow originations, which are now up to $408 million in total.
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"We entered 2022 with strong momentum, we delivered our fifth consecutive quarter of triple-digit Adjusted Revenue growth and improved our operating leverage as we progress on our path to profitability," Dee Choubey, co-founder and CEO of MoneyLion, said in a statement.
Furthermore, MoneyLion reiterated its full-year guidance of $330 million of adjusted revenue. It expects to do about $80 million of adjusted revenue in the second quarter.
I'm sure investors were pleased to see MoneyLion eke out a profit in a world where so many fintech companies are unprofitable. I also think there had been skepticism over MoneyLion's revenue guidance, especially due to the fact that MoneyLion went public through a special purpose acquisition company (SPAC), which are known for underdelivering on guidance.
Upstart reported earnings results earlier this week that beat analyst estimates. However, after management lowered its full-year guidance, the stock came crashing down and is now down more than 63% over the last five days.
The problem is that the investors who ultimately buy a lot of Upstart loans were demanding higher returns due to the increased risk and uncertainty in the economy, which forced Upstart to raise loan pricing on its platform, a trend that could drive down loan transaction volume this year. Additionally, Upstart had to hold some loans it would normally sell to investors on its balance sheet, stoking fears that funding may be drying up in the capital markets. Investors are also still concerned about whether credit quality among Upstart loans will hold up as interest rates rise and inflation remains high.
The concerns about Upstart seemed to spill over and hit Affirm, which will report its most recent earnings results after the market closes today. Earlier this week, Stephens analyst Vincent Caintic downgraded Affirm, citing the fact that Upstart's results could be a sign that's "negative for capital-markets reliant fintechs."
Now what
While Affirm and Upstart have the potential to be long-term disruptors, I am concerned about their reliance on the capital markets and how credit quality will hold up as economic conditions worsen. Therefore, I cannot recommend these stocks right now.
I am not a huge fan of MoneyLion either, although do see some potential upside given how low the valuation is and how the company reaffirmed its guidance. However, there is still some risk of the company not hitting its revenue target, which implies revenue acceleration in the back half of the year. Conditions later this year are still a bit uncertain, so monitor the company's progress closely.
