What happened
It was a terrible week for the fintech Upstart Holdings (UPST 0.76%) as its stock price nose-dived nearly 50%. As of Friday at 10:45 a.m. ET, it was down 45.3% for the week, according to S&P Global Market Intelligence. At one point during the week, it was down as much as 49.3%. Even with the huge drop, Upstart is still up some 152% year to date.
The broader markets were mixed this week, as the S&P 500 fell 0.2%, the Dow Jones Industrial Average gained 0.7%, and the Nasdaq Composite dropped 1.5%, as of Friday morning.
So what
Upstart, a fintech that deploys artificial intelligence (AI) to handle loan requests, had a dreadful year in 2022 when it got hit hard by the bear market. But it regained its mojo this year on improving macroeconomic conditions and a bullish technology market, among other factors. It was one of the best performers on the market, up over 300% at one point this year.
But it lost about half its value this week after it posted second-quarter earnings on Aug. 8. The numbers were not bad, all things considered, as the company beat revenue and earnings expectations.
NASDAQ: UPST
Key Data Points
Revenue was down about 40% year over year in the quarter to $136 million, while the transaction volume of loans from its partners was down 64%. It had a net loss of $28 million, which was slightly better than the $30 million net loss in the second quarter of last year, and an adjusted net loss of $5.4 million. However, these numbers were up slightly from the first quarter of 2023. And the contribution margin -- the sales price per unit minus the cost per unit -- hit a record 67%.
CEO Dave Girouard said: "While the economic environment continues to be challenging, Upstart has the opportunity to grow quickly and profitably when we return to a normalized economy. We're in the pole position to lead the industry to an AI-enabled future that dramatically improves access to credit for hundreds of millions of Americans."
Now what
Investors were more spooked by Upstartʻs outlook for the third quarter than its earnings. Revenue was targeted at $140 million, which would be a slight increase over the second quarter, but the net loss was forecast to rise to $38 million and the contribution margin was expected to fall to 65%.
There was also a concern about higher defaults in a still-challenging economy as the companyʻs own Upstart Macro Index, which tracks the impact of the economy on credit losses, was at an all-time high of 1.68 in June. A reading over 1 indicates higher-than-normal default rates in a month, so the 1.68 reading suggests default rates were 68% higher than the long-term average.
Investors in Upstart must be used to this type of roller coaster ride by now as the stock exploded on the scene in 2021, up 143%, followed by a 91% drop in 2022. This year has been a positive one, but you saw the type of volatility it is prone to this week.
For that reason, it is still a stock that, even on the dip, I would not buy until it shows more consistent results.
