Shares of AI lending platform Upstart (NASDAQ:UPST) jumped 35.6% in the after-market session after 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."
What is the market telling us:
Upstart's shares are very volatile and over the last year have had 106 moves greater than 5%. But moves this big are very rare even for Upstart and that is indicating to us that this news had a significant impact on the market's perception of the business. The previous big move was 8 days ago, when the company dropped 6.85% on the news that investors remained on edge ahead of the critical Fed meeting. Despite recent bank failures, the consensus expectation was for the Fed to hike rates by 25bps, tightening economic conditions even further. JP Morgan's recent acquisition of First Republic marked the third collapse of an American bank since March and has added to concerns about the overall health of the banking sector. Fears are mounting that a sector-wide pullback in lending could magnify the rate hikes meant to tame the economy and cause a more pronounced economic slowdown which could negatively impact all sectors from tech to consumer to industrials alike.
Upstart is up 47% since the beginning of the year, but at $19.22 per share it is still trading 62.8% 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 $642.99.
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