AI lending platform Upstart (NASDAQ:UPST) fell short of analyst expectations in Q2 FY2022 quarter, with revenue up 16.7% year on year to $228.1 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $170 million at the midpoint, or 31% below analyst estimates. Upstart made a GAAP loss of $29.8 million, down on its profit of $37.2 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) Q2 FY2022 Highlights:
- Revenue: $228.1 million vs analyst estimates of $235.2 million (3.03% miss)
- EPS (non-GAAP): $0.01 vs analyst estimates of $0.08 ($0.07 miss)
- Revenue guidance for Q3 2022 is $170 million at the midpoint, below analyst estimates of $246.5 million
- Free cash flow was negative $60.7 million, compared to negative free cash flow of $272 million in previous quarter
- Gross Margin (GAAP): 74.9%, down from 87.6% same quarter last year
“This quarter’s results are disappointing and reflect a difficult macroeconomic environment that led to funding constraints in our marketplace,” 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.
As you can see below, Upstart's revenue growth has been incredible over the last year, growing from quarterly revenue of $195.4 million, to $228.1 million.
Even though Upstart fell short of revenue estimates, its quarterly revenue growth was still up 16.7% year on year. But the revenue actually decreased by $81.9 million in Q2, compared to a $4.81 million increase in Q1 2022. Shareholders might want to pay closer attention to this as the management is guiding for the decline in sales to continue in the coming quarter
Upstart is guiding for revenue to decline next quarter by 25.6% year on year to $170 million, a deceleration on the 242% 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 10.1% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
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 74.9% in Q2.
That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still around the average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market, so it is important to track.
Key Takeaways from Upstart's Q2 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 $2.5 billion and more than $790.4 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $32.28 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.