What happened
Shares of Upstart (UPST 2.76%) stock fell 53% in August, according to data provided by S&P Global Market Intelligence. The artificial intelligence (AI)-based lending platform's stock had skyrocketed this year, but a poor report, coupled with a disappointing outlook, sent it plunging.
So what
Despite Upstart's plummeting performance, investors still can't seem to get enough of its stock. It was a stock market darling when it first came into the market nearly three years ago, gaining more than 850% from January through October 2021. It crashed after that, but it made a big comeback this year as investors gained confidence in the market and Upstart's prospects looked good.
However, investors became disenchanted again after the 2023 second-quarter report was released in August. Revenue decreased 40% from last year to $136 million, and net loss was $33 million, worse than last year's $32 million.
Investors are usually future driven, and low stock prices based on previous performance often present great opportunities to buy on the dip. However, Upstart's outlook was dismal as well, sparking the monstrous sell-off. Management is guiding for revenue of $140 million and net loss of $38 million in the third quarter. That would be an 11% decrease from last year, which was already 31% lower than the year before.
The net loss would be an improvement from $56 million in 2022 and would be worse sequentially. Since Upstart has already been posting severely declining metrics for several quarters, investors want to see some recovery at this point.
Upstart stock was up as much as more than 400% this year before toppling. It's still down 91% from its highs in 2021.
Now what
No stock has a completely linear path, but Upstart's highs and lows have been far more extreme than a typical stock. That's likely because Upstart's potential looks incredible, leading to investors wanting to benefit from what it can offer down the line, and then investors backing out when the performance isn't backing it up.
The opportunity still looks compelling. Upstart is adding clients to its platform, and management claims that its model works better than the traditional credit scoring model, even in this environment. It's launching its first home financing product, getting into its largest market opportunity. However, its business isn't likely to recover before interest rates stabilize or come down.
At the current price, Upstart stock is finally looking more reasonable again, trading at around 5 times trailing-12-month sales. But it looks like a hot potato right now, and investors may want to wait for it to cool off.
