Fintech
Because this Fintech stock is soaring
Emerging participations (NASDAQ:UPST) could be considered the poster child for irrational exuberance which saw tech stocks skyrocket in 2020 and 2021 – only to crash in late 2021 and 2022 when the bubble burst.
Shares of Upstart, which uses artificial intelligence (AI) to process loan applications, rose to $400 per share in October 2021, less than a year after its initial public offering at about $26 per share in December 2020. Now, less than four years later, the wild ride that took the stock from $26 to $400 before bringing it back to the lows of $12 a share has brought it back to where it started at $26 a share.
I won’t dwell on the short and volatile history of Upstart stock, but I will say that it exploded on Thursday, up 13% two days after the company released its first-quarter earnings report. Let’s take a look to see if this climb is a sign of momentum or simply more volatility in the stock.
Simplification of operations
Like most young companies ramping up operations, Upstart has been saddled with high expenses. However, those expenses have been even higher due to rising inflation and soaring interest rates, which have made it more expensive to borrow and invest in growth.
Nonetheless, Upstart has made progress in streamlining operations and reducing expenses while increasing revenue. The fintech company generated revenues of $128 million in 2019 first quarterup 24% on an annual basis and above analysts’ estimates.
Upstart reported a net loss of $65 million in the quarter, down from a net loss of $129 million in the same quarter a year ago, but worse than a net loss of $45 million in the prior quarter. previous quarter. Additionally, the company reported a net EBITDA loss of $20 million, compared to $31 million a year ago.
Despite these losses, Upstart made great strides in reducing expenses during the first quarter, reducing operating expenses 17% year over year to $195 million.
“There are many reasons to believe that our business will soon return to growth, but we are also prepared for the continuation of current macroeconomic conditions. Therefore, we continue to focus on improving our efficiency and financial performance by investing responsibly for the long term,” said Dave Girouard, CEO and co-founder of Upstart. earnings call.
The company did this by minimizing hiring, reducing staff, flattening organizational structures, limiting cloud infrastructure costs, and reallocating resources to high-priority areas.
“Since the beginning of 2024, we have reduced fixed personnel expenses by approximately $20 million on an annual basis. Our headcount today is as low as it has been since the third quarter of 2021,” Girouard said.
Ultimately, the company expects to return to EBITDA profitability by the fourth quarter of this year.
Is Upstart a purchase?
Upstart’s stock price fell about 11% after its earnings release Tuesday, mostly due to its second-quarter forecast. The company expects revenue of $125 million, down from the first quarter and below consensus estimate of 141 million dollars. Upstart forecast a net loss of $75 million, higher than the first quarter, while it estimated an adjusted EBITDA loss of $25 million, also higher than the first quarter.
The next day, Upstart shares regained everything they had lost, rising about 13% to $26 per share, and this encapsulates the volatile nature of this stock. Investors may have thought Wednesday’s sell-off was too steep, so they bought back on Thursday.
There’s a lot to like about Upstart, as its technology platform is impressive. It allows its customers – banks and financial institutions – to use its AI technology to manage loan requests in minutes. It’s simply a terrible market for a startup like Upstart, as the high interest rate environment not only impacts its finances, but has also created a challenging lending environment.
As rates begin to fall, the economy improves, and lending activity increases, Upstart should benefit and become profitable, but there is too much uncertainty right now to justify a buy rating.
Disclaimer: All investments involve risk. In no way should this article be considered as investment advice or constitute any liability for investment gains or losses. The information in this report should not be relied upon in making investment decisions. All investors should conduct their own due diligence and consult their investment advisors when making trading decisions.