What Happened:
Shares of AI lending platform Upstart (NASDAQ:UPST) jumped 6.16% in the morning session after investment manager, Castlelake, L.P. partnered with Eltura Capital Management, a co-investor and minority partner, to acquire consumer installment loans worth up to $4 billion from the company. The company added that "Castlelake's support will help ensure we have the resources to continue scaling the deployment of our AI models and expanding access to affordable credit for all consumers." Given recent bank failures, the funding should help reinforce Upstart's balance sheet ahead of a potential economic downturn amid the growing risks in the lending space.
What is the market telling us:
Upstart's shares are very volatile and over the last year have had 105 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was six days ago, when the company gained 35.6% on the news that the company reported first quarter results that exceeded analysts' revenue, adjusted EBITDA, and earnings per share (EPS) estimates. However, the company continued to burn cash. Revenue guidance for the next quarter came in above Consensus and the company expects adjusted EBITDA to be nearly breakeven, which is a major milestone. What makes the company unique in the SaaS space is its exposure to lending. Given recent failures and other difficulties in the banking sector, there was added uncertainty coming into this quarter. Management addressed these concerns by providing positive commentary that "despite macro challenges, we secured multiple long-term funding agreements, together expected to deliver more than $2 billion to the Upstart platform over the next 12 months."
Upstart is up 57.8% since the beginning of the year, but at $20.31 per share it is still trading 60.7% below its 52-week high of $51.71 from June 2022. Investors who bought $1,000 worth of Upstart's shares at the IPO in December 2020 would now be looking at an investment worth $690.30.
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