What happened
Shares of Upstart (UPST +4.93%), the AI-based lending platform, soared last month after the company benefited from a better-than-expected earnings report, a deal with Castelake to sell $4 billion in loans, and what appeared to be an extended short squeeze.
According to data from S&P Global Market Intelligence, the stock jumped 96% over the course of the month. The stock's gains came in several stages.
So what
Upstart's first round of gains came on May 10, when the stock jumped 35% after the company reported first-quarter earnings. Upstart, which helps screen borrowers for banks and other lenders, is still struggling in the current macroeconomic environment.
The company said total revenue fell 63% to $103 million, which missed the consensus at $109 million, but the company reported a narrower-than-expected loss. It finished the quarter with an adjusted loss per share of $0.47, down from a per-share profit of $0.61 in the quarter a year ago, but that was still better than estimates at a per-share loss of $0.81.
Upstart also called for a rebound in the second quarter, seeing revenue of $135 million, which was slightly ahead of estimates, and flat adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which compares with a $31.1 million loss in the first quarter.
The following week, the stock jumped again after global alternative investment manager Castlelake said it reached an agreement to buy up to $4 billion in consumer installment loans from Upstart. The move gives Upstart additional financial flexibility, and investors responded by bidding the stock up 24% on May 15.
Over the second half of the month, Upstart stock continued to gain on what looked like a short squeeze as shares traded at above-normal volume. Thirty-five percent of the stock was sold short as of May 15, meaning the stock remains a candidate for a short squeeze, especially since shares are down more than 90% from their peak in 2021.
Now what
Upstart seems to have endured the worst of the credit cycle, and the guidance was encouraging, as it called for improving results from the first quarter to the second quarter.
Still, there's a lot of uncertainty around the stock given its historical performance and sensitivity to macroeconomic factors. Expect the volatility in the stock to continue, especially as there's potential for more short squeezes.
