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Shares of Upstart (NASDAQ:UPST) are down almost 20% in premarket trading Friday after the company reported worse-than-expected preliminary Q2 revenue and net loss.
The AI lender reported Q2 preliminary revenue of around $228 million, well below the analysts’ expectations of $297.8 million, and compared to the company’s previous revenue guidance of $295 to $305 million.
The preliminary contribution margin in the second quarter was reported at roughly 47%, compared to Upstart’s previous guidance of 45%. The company reported a preliminary Q2 net loss of $31 million to $27 million, compared to its earlier forecast range of $4 million net loss to $0.
“Our revenue was negatively impacted by two factors approximately equally. First, our marketplace is funding constrained, largely driven by concerns about the macroeconomy among lenders and capital market participants. Second, in Q2, we took action to convert loans on our balance sheet into cash, which, given the quickly increasing rate environment, negatively impacted our revenue,” the company said in a statement.
JMP analyst Andrew Boone downgraded UPST to Market Perform after disappointing preliminary results.
“Driving our downgrade is limited revenue visibility going forward as Upstart does not want to hold loans on its balance sheet while capital market participants are less willing to fund originations. To be clear, loans continue to perform approximately in line with expectations while Upstart has a significant catalyst ahead in auto; however, given the worsening macro environment and limited visibility into when capital markets will reopen for Upstart, we believe the risk/reward in shares is balanced at current levels,” Boone told clients in a note.
BofA analyst Nat Schindler cut the price target to $34 from $41 after a preliminary miss against the “already low Q2 forecast.”
“The days of stimulus flush customers are over and the reality that not everyone may be able to repay their loans is setting in. Upstart is caught in a position where investors demand higher rates, lenders are uncomfortable lending out money, and customers will likely push back on high rates. At this time, the issue remains on the supply side but if rates move to the point where credit cards and other forms of loans become cheaper, the equation will likely move quickly out of Upstart’s favor,” the analyst wrote in a client note.
Upstart is due to report the full Q2 results on August 8.
