What Happened:
Shares of AI lending platform Upstart (NASDAQ:UPST) jumped 11% in the afternoon session after analyst Lance Jessurun of BTIG maintained a Buy rating and raised his price target from $42 to $72. The price target implied a potential 14% upside from where shares were traded when the report was released. Based on web traffic analysis, the analyst expects Upstart's Q2 revenue to exceed guidance and Consensus by around $10M, assuming a modestly higher conversion rate than the previous quarter. Upstart is expected to report Q2'2023 earnings on August 8. Note that the stock's large move is unusual for a sellside analyst increasing his price target. However, the price target change is quite significant, and the short interest in the stock is >30%. With Jessurun's confidence that the company will report a strong, better-than-expected revenue quarter, some who are betting against the stock may be covering their short positions, adding a technical tailwind to the stock's move up. After the initial pop the shares cooled down to $63.13, up 0.24% from previous close.
What is the market telling us:
Upstart's shares are very volatile and over the last year have had 99 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 three months ago, when the stock 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 389% since the beginning of the year. Investors who bought $1,000 worth of Upstart's shares at the IPO in December 2020 would now be looking at an investment worth $2,140.
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