What happened
It was a good week for Upstart Holdings (UPST 2.86%) as its stock price rose roughly 8.9% as of Friday at 10 a.m. ET, according to S&P Global Market Intelligence. The stock had been up as much as 9.5% during the week. On Friday morning, it was up about 146.9% year to date.
The broader markets were also up this week, as the S&P 500 gained 2.6%, the Dow Jones Industrial Average rose 1.6%, and the Nasdaq Composite jumped 3.2%, as of Friday at 10 a.m. ET.
So what
The fintech, which uses artificial intelligence (AI) to facilitate loans, soared in the first half of the year, fueled by the surge in technology stocks, and more specifically AI-related stocks. But things have cooled in the past months as Upstart went from over $70 per share on Aug. 1 to its current price hovering around $33. It is still up around 150%, but it lost half its value in the past month.
The tumble was related to its second-quarter earnings, which saw revenue drop 40% year over year to $136 million, and transaction volume of loans on its platform was down 64%. The company had a net loss of $28 million.
NASDAQ: UPST
Key Data Points
Investors probably were more alarmed by the third-quarter outlook, which targeted revenue of $140 million, up a tad from the second quarter, but the net loss was projected to increase to $38 million and the contribution margin was expected to fall to 65%.
Also, its Upstart Macro Index, which measures the potential for credit losses, hit a high of 1.70 in June, which is the latest data available. Anything over 1 indicates higher-than-normal default rates at a given time, so a score of 1.70 says default rates were up 70% over the normal range. That's not a good sign for the banking industry.
As for this week's jump, there didn't appear to be anything specifically related to Upstart to cause its rise. Most of the increase came on Tuesday, the day the market surged as the Nasdaq Composite had its best day in several weeks.
The catalyst was a U.S. Labor Department report that showed job openings falling to 8.8 million, their lowest level since March 2021. This indicated that the labor market is cooling, which in turn is seen as a sign that inflation could drop. Ultimately, reduced inflation could signal the end of interest rate hikes.
Now what
Upstart has been one of the most volatile stocks on the market in recent years, and that has been on full display this year. Analysts are not bullish on its prospects, with consensus estimates calling for a 39% drop to $20 over the next 12 months. That is largely based on Upstartʻs own outlook and its high valuation with a price-to-sales ratio of 4.90, among other factors.
The company is still operating at a loss, and that is anticipated to increase this quarter. This is not a stock I would consider until it shows consistent net income and earnings.
