What Happened:
Shares of AI lending platform Upstart (NASDAQ:UPST) fell 24.1% in the pre-market session after the company reported fourth-quarter results with revenue guidance for the next quarter, missing analysts' expectations as it cited a difficult lending environment. The topline guidance factored in the usual "seasonal softness" observed in the first quarter of the year. Also, the results showed that the company burned through a significant amount of cash during the quarter. In addition, its gross margin decelerated significantly, impacting other profitability ratios. Lastly, during the quarter, the company observed "rising loan delinquencies in more affluent segments of the borrower base." Overall, it was a weaker quarter for the company.
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What is the market telling us:
Upstart's shares are very volatile and over the last year have had 85 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 biggest move we wrote about over the last year was 9 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 guided for 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 the 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 down 32.8% since the beginning of the year, and at $26.11 per share it is trading 63.8% below its 52-week high of $72.09 from July 2023. Investors who bought $1,000 worth of Upstart's shares at the IPO in December 2020 would now be looking at an investment worth $884.63.
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