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Upstart (NASDAQ:UPST) Exceeds Q1 Expectations But Stock Drops 36.8%


Adam Hejl /
2022/05/09 4:19 pm EDT
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AI lending platform Upstart (NASDAQ:UPST) reported Q1 FY2022 results that beat analyst expectations, with revenue up 153% year on year to $310.1 million. However, guidance for the next quarter was less impressive, coming in at $300 million at the midpoint, being 10.4% below analyst estimates. Upstart made a GAAP profit of $32.6 million, improving on its profit of $10.1 million, in the same quarter last year.

Is now the time to buy Upstart? Access our full analysis of the earnings results here, it's free.

Upstart (UPST) Q1 FY2022 Highlights:

  • Revenue: $310.1 million vs analyst estimates of $300.1 million (3.33% beat)
  • EPS (non-GAAP): $0.61 vs analyst estimates of $0.53 (15.2% beat)
  • Revenue guidance for Q2 2022 is $300 million at the midpoint, below analyst estimates of $334.8 million
  • The company dropped revenue guidance for the full year, from $1.4 billion to $1.25 billion at the midpoint, a 10.7% decrease
  • Free cash flow was negative $272 million, compared to negative free cash flow of $14.6 million in previous quarter
  • Gross Margin (GAAP): 83.8%, down from 85.7% same quarter last year

“Upstart just delivered our seventh consecutive profitable quarter and our fourth straight quarter with triple-digit year-on-year revenue growth,” said Dave Girouard co-founder and CEO of Upstart.

Founded by the former head of Google's enterprise business Dave Girouard, Upstart (NASDAQ:UPST) is an AI-powered lending platform that helps banks better evaluate the risk of lending money to a person and provide loans to more customers.

Businesses have come to use data driven insights to stratify their customers into more granular buckets that enable more personalized (and profitable) offerings. Lending software is a prime example of fintech democratizing access to loans in a still-profitable manner for financial institutions.

Sales Growth

As you can see below, Upstart's revenue growth has been incredible over the last year, growing from quarterly revenue of $122.3 million, to $310.1 million.

Upstart Total Revenue

And while we saw even higher rates of growth previously, the revenue growth was still very strong; up a rather splendid 153% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $4.81 million in Q1, compared to $76.6 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Upstart is expecting revenue to grow 53.4% year on year to $300 million, slowing down from the 896% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 49.2% over the next twelve months.

There are others doing even better than Upstart. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Upstart's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 83.8% in Q1.

Upstart Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still a great gross margin, that allows companies like Upstart to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Upstart's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Upstart’s balance sheet, but we note that with a market capitalization of $7.1 billion and more than $757.8 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Upstart delivered this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that Upstart's revenue guidance for the full year missed analyst's expectations. Overall, this quarter's results could have been better. The company is down 36.8% on the results and currently trades at $48.71 per share.

Upstart may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.