4 Upstart Analysts Bearish After Q4 Earnings: 'Roses Are Red, Violets Are Blue, Macro Still Challenged, For Upstart, Too'

Benzinga - by Surbhi Jain, .

Upstart Holdings Inc (NASDAQ:UPST) shares are trading lower after the lending platform issued first-quarter revenue guidance below estimates.

Despite surpassing the consensus estimate with a fourth-quarter revenue of $140.91 million, representing a 4% year-over-year decrease, the San Mateo, California-based company reported a loss of 11 cents per share, outperforming analyst predictions for a loss of 14 cents per share.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the release:

• Piper Sandler analyst Arvind Ramnani remains Neutral on the stock, while raising the price target from $27 to $28.
• Goldman Sachs analyst Michael Ng, CFA reiterated his Sell rating, with a 12-month target price of $12.
• JPMorgan Chase analyst Reginald L. Smith, CFA remains Underweight on Upstart stock, with a Dec. ’24 price target of $26.
• Wedbush analyst David J. Chiaverini, CFA maintained Underperform rating, with a 10-month price target of $10.

Piper Sandler: “Roses are red, violets are blue; macro still challenged, for UPST too” said Ramnani in his note reviewing Q4 earnings.

Upstart saw a significant 13% increase in loan volumes but experienced a 9% reduction in loan sizes. The company achieved 89% automation for unsecured loans and tripled approval rates for small-dollar offerings since August.

Upstart foresees enhanced competitive differentiation in a healthier macroeconomic setting. There’s near-term caution due to delinquencies in affluent segments, especially in auto loans and credit cards. Despite that, the company has made notable progress in product development and refining lending models.

Goldman Sachs: Per Ng, “borrower delinquency trends weigh on outlook.” Ng highlighted positive factors for Upstart, including better-than-expected contribution margins in the last quarter, anticipated elevated margins in the upcoming quarter, and the company’s focus on funding diversification through a $300 million personal loan sale and a new agreement for originating $500 million in loans.

However, the 1Q24 outlook is less optimistic due to concerns about borrower delinquency trends impacting originations and net interest income, particularly in higher FICO borrowers where rising delinquencies are observed.

JPMorgan: Smith is on the lookout for a new funding deal on the horizon, saying “UPST hasn't closed a significant funding deal since 1Q23, when they announced $4bn in funding.” He sees Upstart benefiting from a powerful flywheel effect driven by its AI lending platform. This could create a positive cycle with improved risk detection, higher approval rates, and increased volume based on repayment data.

However, near-term challenges such as soft originations, decreased investor demand for sub-prime unsecured consumer credit, and the risk of elevated losses on held loans, remain.

Wedbush: Chiaverini said that management remains cautious about macro pressures despite positive economic indicators. He sees ongoing economic challenges and weak credit quality. Concerns include the untested underwriting model in a true recession, potential pressure on credit buyers, and market appetite during macro uncertainty. “Headwinds remain,” he said.

The primary risk remains Upstart’s reliance on third-party funding, particularly vulnerable during economic downturns.

UPST Price Action: Upstart shares were down 19.72% at the time of publication Wednesday.

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