Upstart Holdings (NASDAQ:UPST) is perhaps considered the poster child for the irrational exuberance that saw technology stocks soar in 2020 and 2021 — only to crash in late 2021 and 2022 when the bubble burst.
Shares of Upstart, which deploys artificial intelligence (AI) to process loan requests, surged to $400 per share in October 2021, lower than a yr after the initial public offering at around $26 a share in December 2020. Now lower than 4 years later, the wild ride that lifted the shares from $26 to $400 before plunging them back right down to a low of $12 per share has brought them right back to where they began at $26 per share.
I won’t dwell on the transient, volatile history of Upstart stock, but I’ll say it was popping on Thursday, surging 13% two days after the corporate released its first-quarter earnings report. Let’s have a look to see if this climb is an indication of momentum or simply more volatility within the stock.
Streamlining operations
As with most young firms which might be ramping up operations, Upstart has been saddled with high expenses. Nonetheless, those expenses have been even higher as a result of rising inflation and soaring rates of interest, which have made it dearer to borrow and put money into growth.
Nonetheless, Upstart has made progress in streamlining operations and lowering expenses while boosting revenue. The fintech company generated $128 million in revenue in the primary quarter, up 24% yr over yr and ahead of analysts’ estimates.
Upstart posted a net lack of $65 million within the quarter, down from a net lack of $129 million in the identical quarter a yr ago but worse than the $45 million net loss within the previous quarter. Further, the corporate recorded a net EBITDA lack of $20 million, in comparison with $31 million a yr ago.
Despite those losses, Upstart made strides in lowering its expenses throughout the first quarter, trimming its operating expenses by 17% yr over yr to $195 million.
“There are a lot of reasons to imagine our business will return to growth soon, but we’re also prepared for the present macroeconomic conditions to persist. So, we proceed to concentrate on improving our efficiency and financial performance while investing responsibly for the long run,” Upstart CEO and co-founder Dave Girouard said on the earnings call.
The corporate has done that by minimizing hiring, reducing staff, flattening organizational structures, limiting cloud infrastructure costs, and reallocating resources to high-priority areas.
“For the reason that starting of 2024, we’ve cut fixed expenses from headcount by roughly $20 million on an annual basis. Our headcount today is as little as it’s been since Q3 of 2021,” Girouard said.
Ultimately, the corporate expects to return to EBITDA profitability by the fourth quarter of this yr.
Is Upstart a buy?
Upstart’s stock price dropped some 11% after its earnings were released on Tuesday, mainly as a result of its second-quarter guidance. The corporate expects revenue of $125 million, which is down from Q1 and below the consensus estimate of $141 million. Upstart projected a net lack of $75 million, higher than Q1, while it estimated an adjusted EBITDA lack of $25 million, also higher than Q1.
At some point later, Upstart stock regained all it had lost, rising some 13% back to $26 per share, and that encapsulates the volatile nature of this stock. Investors could have thought the sell-off on Wednesday was too steep, in order that they bought back in on Thursday.
There’s so much to love about Upstart, as its technology platform is impressive. It allows its customers — banks and financial institutions — to make use of its AI technology to handle loan requests in a matter of minutes. It’s only a terrible marketplace for an upstart like Upstart, because the high-interest-rate environment not only impacts its funds but has also made for a difficult loan environment.
When rates start to come back down, the economy improves, and loan activity surges, Upstart should profit and turn into profitable, but without delay, there’s just an excessive amount of uncertainty to warrant a Buy rating.
Disclaimer: All investments involve risk. By no means should this text be taken as investment advice or constitute responsibility for investment gains or losses. The data on this report shouldn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.