What happened

Shares of Upstart Holdings (UPST -3.76%) cratered out of the gate on Wednesday, eventually recouping some of their losses. The stock plunged as much as 26.4% in early trading, but by 11:52 a.m. ET, the stock was down 13.4%.

The catalyst that sent the artificial intelligence (AI)-based lending platform lower was its third-quarter financial results, which were far worse than expectations.

So what

Upstart reported revenue of $157 million, down 31% year over year, while total fee revenue of $179 million slumped 15%. This resulted in an adjusted loss per share of $0.24. 

To give those numbers context, analysts' consensus estimates were calling for revenue of $169.4 million and an adjusted loss per share of $0.08, so Upstart wasn't even in the ballpark. 

The downtrodden economy weighed on Upstart's results, which was evident in other metrics. The company's banking and auto partners originated 188,519 loans, down 48% year over year. The total value of those loans was $1.85 billion, down 41%.

Conversion rates also took a hit, falling to 9.7%, down from 23% in the prior-year quarter. If there was a bright spot, contribution profits of $96 million edged higher from $95.9 million, pushing contribution margin to 54%, compared with 46% in the year-ago quarter.

Now what

If investors were looking for any solace in Upstart's fourth-quarter forecast, they didn't find it. Management is guiding for revenue in a range of $125 million to $145 million, a decline of 56% at the midpoint of its guidance.

Still, for investors with a long-term outlook, there are reasons to be bullish. Upstart's fintech platform is a giant step forward in accuracy in judging credit risk, using more than 1,500 variables instead of just a few used by the traditional system. By better determining risk, Upstart is bringing a far greater number of borrowers into the fold, which will benefit the company's partners.

Rising interest rates and fears regarding a spike in defaults are causing loan availability to shrink -- for now. This too shall pass when the economy improves. In the meantime, Upstart shares are currently trading at less than 1.5 times sales, a bargain price for a company disrupting the lending industry.