In this photo illustration, the Upstart Holdings logo appears on the smartphone screen.
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Shares of Upstart fell sharply on Tuesday after the artificial intelligence lending platform lowered its year-round revenue prospects, citing rising interest rates and an uncertain economy.
The company announced better than expected results for the first quarter Monday after the bell, but also lowered its revenue forecast for 2022 to $ 1.25 billion from a preliminary estimate of $ 1.4 billion.
Upstart expects second-quarter revenue of $ 295 million to $ 305 million, while analysts surveyed by Refinitiv forecast an average of $ 335 million.
Shares closed 56.4 percent lower on Tuesday at $ 33.61 a share. Upstart was down 91.6% from its highest value of $ 401.49 per share in October.
“Given the general macro-uncertainty and the emerging prospect of a recession later this year, we thought it reasonable to reflect a higher degree of conservatism in our future expectations,” CFO Sanjay Data said during Upstart’s profit talk. Monday.
The company, which uses artificial intelligence to assess creditworthiness, said rising interest rates hurt the volume of loans.
“In addition to raising interest rates for approved borrowers, this also has the effect of lowering the approval rates for margin applicants,” said CEO David Giroud during the call for proposals.
Initial management indicated that additional economic challenges lie ahead as the Federal Reserve continues to raise interest rates and cut its balance sheet to reduce sustained inflation.
“Given the hawks’ signals from the Fed, we expect prices to rise later this year, which will reduce the volume of our transactions, other things being equal,” Giroud added.
In addition, the company noted that borrowers’ defaults are normalizing. During the pandemic, the write-off rate and insolvency bottomed out in decades amid government aid and stimulus programs.
“After remaining at historically low levels for the past 18 months, loan default rates have risen quite sharply towards the end of last year and are now returning to or in some cases above pre-pandemic levels,” Data said.
Upstart received numerous downgrades from Wall Street analysts at Goldman Sachs, Piper Sandler, Citigroup and Stephens after the quarterly report.
Piper Sandler analyst Arvin Ramnani downgraded the stock rating to neutral from overweight on Tuesday and lowered his target price for the stock to $ 44 from $ 230. The new price forecast assumes a 75% drop compared to the closing price of Upstart on Monday.
“The scope of UPST results has increased given macro-uncertainty,” Ramnani said in a note. “We expect that there may be another decline based on the speed and intensity of the recession.