Shares of Upstart (UPST 2.76%) were among the big winners this week, even though there was no news out on the artificial intelligence (AI)-based consumer lending company.
Instead, Upstart stock soared on signs that the Federal Reserve could be done raising interest rates following the Federal Open Market Committee (FOMC) meeting on Wednesday.
As a result, the stock was up 31.3% for the week as of 3:09 p.m. ET, according to S&P Global Market Intelligence.
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Is Upstart ready for a turnaround?
As a consumer lender, Upstart is highly sensitive to interest rates. The stock went public in late 2020 and soared on strong top-line growth and solid profitability, but the business came crashing down last year as interest rates rose, credit standards tightened, and demand for loans waned due to higher rates.
Seen through that lens, the end of the Federal Reserve's interest rate campaign would be particularly good news for Upstart. Fed Chair Jerome Powell wouldn't say that the central bank was done raising rates, but downplayed the earlier "dot plot" forecast from September, which had called for another rate hike by the end of the year.
The company is also set to report third-quarter earnings next week, setting the stage for another big move. The signs indicate that the third quarter was another tough period for the lending industry. LendingClub, for example, saw loan originations fall by a quarter, from $2 billion in the second quarter to $1.5 billion in the third quarter, while revenue was down 13% to $200.8 million.
Upstart, on the other hand, has returned to sequential revenue growth as of the second quarter, sporting $136 million in revenue, up from $103 million, but it forecast revenue of $140 million in the third quarter, just a modest increase.
The end of the beginning or the beginning of the end?
Even if investors are right that the Fed is done raising rates, that alone won't solve Upstart's problems. It still needs creditworthy consumers to borrow from it, and it needs banks that are willing to partner with it to put those loans on their books.
In other words, the company may need interest rates to come down to see a real rebound in its business, but stock prices are forward-looking, and investors will continue to react to news that affects interest rates.
Looking ahead to next week, analysts are expecting revenue of $140.3 million, down 17.2% from the previous year, and its adjusted loss per share to narrow from -$0.24 to -$0.02. Guidance will be key in determining where the stock goes next week, but investors will likely have to be patient for a recovery.
