Upstart Holdings Inc.’s controversial stock will be put to the test Tuesday afternoon when the company posts earnings.
Shares of Upstart
UPST,
have nearly quadrupled so far this year, although they’re off 87% from their all-time closing high of $390, achieved in October 2021. Shares of the lending company have been riding the wave of enthusiasm for artificial intelligence, while Upstart has also shown improvements to a business that has struggled in a higher-rate and more uncertain macroeconomic environment.
The company could deliver upside when it reports Tuesday afternoon, according to BTIG analyst Lance Jessurun, though he wonders if that potential is already priced into Upstart’s stock given a recent surge.
Read: Upstart may be gearing up for a big beat, but does its stock already reflect that?
“After a year or more of being one of the Street’s top short ideas, recent funding partnerships and changes to the underwriting model have put Upstart on a path back to growth and profitability,” he wrote, although he thinks shorts may have covered positions recently, based on strong third-party web-traffic-data indications about the business.
Here’s what to watch for in Upstart’s numbers, due out after Tuesday’s closing bell:
What to expect
Earnings: Analysts tracked by FactSet expect the company to post an adjusted loss of 7 cents a share, whereas Upstart earned 1 cent a share in the year-ago quarter.
Revenue: The FactSet consensus is for $135.2 million in revenue, down from $228.2 million in revenue a year earlier.
Stock movement: Upstart shares tend to make wild swings after earnings. The company has posted results 10 times since going public, and nine of those reports were followed by a double-digit-percentage swing in the next trading session. Upstart shares have gained following each of the company’s past two reports, and they’re up 284% so far this year.
What else to watch for
Jefferies analyst John Hecht will be watching for information about delinquency trends.
“Consistent with trends within near-prime unsecured lending, [Upstart’s delinquency] rates seem to have stabilized in recent months,” he wrote in a recent report. He expects that “loss rates should stabilize and potentially drop moving forward given [delinquency] stabilization.”
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AI commentary will be top of mind on Upstart’s call, and while the company says it uses artificial intelligence to inform lending decisions, JMP Securities analyst David Scharf said he and his team “have not observed anything in either its underwriting performance or description of its technology that looks to be differentiated from other public and private digital lenders that we have followed for more than a decade.”
He’s also interested in signs of momentum for the company’s car-loan business. “Currently, we do not believe the company has made meaningful progress in auto purchase loan volumes,” Scharf wrote.
The automobile business is notable, as “the unsecured personal market in the U.S. is not a particularly large asset class,” so “it is imperative for [Upstart] to successfully penetrate other loan types to achieve and sustain the type of long-term growth its current valuation suggests,” Scharf said.
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