On July 8, 2022, Upstart plunged by 20%. It warned that it would lose between $27 - 31 million in the
second quarter. What just happened?
Upstart, an artificial intelligence lending marketplace, announced lower revenue. It expects revenue of
just $228 million, compared to its $295 million to $305 million guidance. The contribution margin is 47%,
above its previous 45% guidance. UPST stock fell from severe selling pressure because it will lose up to
$31 million. Previously, the firm guided the net income of break-even to a $4 million loss.
Upstart’s CEO, Dave Girouard, blamed inflation and recession fears for raising interest rates. This hurt its
marketplace funding. What’s worse is Upstart converting its loans on its balance sheet into cash. This
hurt its revenue.
Nearly six months ago, Upstart’s management felt compelled to buy back stock, calling shares
undervalued. The opposite is now true. The business model does not work when credit conditions
worsen and the economy falls into a recession. Capital market participants are less willing to fund
originations, according to analysts at JMP. In addition, Upstart’s magical AI-powered data analytics does
not give the firm an edge.
The lending market is contracting. High-flyers like UPST stock lost their momentum. Avoid this stock.
