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Upstart earnings: What to expect

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Upstart Holdings Inc.’s earnings reports are known to take investors on wild rides.

Shares of the company, which uses artificial intelligence to inform lending decisions, have made double-digit moves following seven of Upstart’s
eight earnings reports since the company went public. Those last three double-digit swings have been negative.

Upstart will look to change that narrative when it delivers its results and outlook Tuesday afternoon amid a stretch that’s already proven to be challenging for lenders. Buy-now-pay-later operator Affirm Holdings Inc.
fell short of expectations with its latest results, while LendingClub Corp.
declined to give an annual forecast amid market uncertainty.

Here’s what to expect from Upstart’s own report.

What to expect

Earnings: Upstart was profitable a year ago on both a GAAP basis and an adjusted basis, but analysts were expecting losses on both metrics for the latest quarter. The FactSet consensus called for a 47-cent adjusted loss per share, whereas the company posted 89 cents in adjusted earnings per share a year before. On Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate called for an adjusted loss per share of 46 cents.

Analysts surveyed by FactSet were also modeling a 98-cent GAAP loss per share, versus the 61 cents in GAAP earnings per share that Upstart recorded a year earlier.

Revenue: Analysts tracked by FactSet anticipated that revenue for Upstart fell by more than half in the December quarter, to $133.6 million from $304.8 million. Those contributing to Estimize were looking for $134.8 million in revenue on average.

Stock movement: Upstart shares have seen split performance following the company’s eight earnings reports as a public company, rising in the session immediately following four of them, and falling after the other four.

The stock has plunged 84% over the past 12 months, as the S&P 500
has declined 6%.

Of the 14 analysts tracked by FactSet who cover Upstart’s stock, none rated the stock a buy. Six had hold ratings, and the other eight had sell ratings, with an average price target of $14.62. Upstart shares closed Monday at $16.09.

What else to watch for

Since Upstart’s last earnings report, the company announced plans to cut 20% of its staff, citing a “challenging” backdrop.

The move came “in response to the challenging macro environment where many lenders and credit investors have significantly reduced or paused loan originations,” Upstart said in a late January filing, while also noting that it would pause development of a small-business loan product until there is a better economic climate.

The commentary “does not bode well for the outlook on volumes,” Mizuho analyst Dan Dolev wrote.

He estimated that Upstart would need to see about $8 billion in annualized volumes to break even following the layoffs, meaning that the company would be able to do fewer originations off its balance sheet if it’s able to obtain the funds from somewhere else.

Loop Capital analyst Hal Goetsch wondered if Upstart’s cost-cutting has gone far enough.

“We look back at the dollars spent in opex through the first half of 2021 and think management should consider even more action on the cost side to return to those levels,” he wrote in a recent note to clients. “We believe solid profitability would be reached on a leaner cost structure than currently proposed by the recent cuts.”

In Goetsch’s view, “it is a good idea to look at the cash burn and balance sheet to see how the company can weather this current funding and macro drought.” He expected that Upstart’s burn rate will pick up before the cost cuts drive improvements.

See more: Upstart is ‘perhaps an idea ahead of its time’ but its stock is too volatile now, analyst warns

Jefferies analyst John Hecht wrote recently that Upstart issued $193 million of asset-backed-securities notes in early February, backed by $241 million of loans.

“The issuance is a positive indication of thawing ABS markets and demand for UPST loans, but came with record high note yields and 5% of the deal retained by a co-sponsor,” he wrote.


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