Upstart shares plunge 56% after the company cut full-year revenue guidance

Upstart’s shares plummeted on Tuesday after the artificial intelligence lending platform cut its full-year sales outlook citing rising interest rates and an uncertain economy.

The company had reported better-than-expected first-quarter results after the bell Monday, but also lowered its 2022 revenue guidance to $1.25 billion from a previous estimate of $1.4 billion.

Upstart expects Q2 revenue to be between $295 million and $305 million, while analysts polled by Refinitiv were forecasting an average of $335 million.

The stock closed Tuesday down 56.4% at $33.61 a share. Upstart is down 91.6% from its October high of $401.49 per share.

“Given the overall macroeconomic uncertainties and the looming prospect of a recession later this year, we think it’s prudent to incorporate a higher level of conservatism in our expectations going forward,” CFO Sanjay Datta said on Upstart’s earnings call on Monday .

The company, which uses artificial intelligence to assess creditworthiness, said rising interest rates are hurting lending volume.

“In addition to increasing approved borrower rates, this also has the effect of reducing applicant approval rates on the margin,” CEO David Girouard said on the conference call.

Upstart management pointed to more economic challenges as the Federal Reserve continues to hike interest rates and trim its balance sheet to curb persistent inflation.

“Given the hawkish signals from the Fed, we expect prices to continue to rise later this year, which will result in our transaction volume narrowing, all else being equal,” added Girouard.

The company also noted that borrower defaults are normalizing. During the pandemic, write-off and delinquency rates hit decade-lows amid government aid and stimulus programs.

“After remaining at historically low levels for the past 18 months, loan default rates rose quite abruptly towards the end of last year and are now back to, or in some cases above, pre-pandemic levels,” Datta said.

Upstart received a series of downgrades from Wall Street analysts at Goldman Sachs, Piper Sandler, Citigroup and Stephens following the earnings release.

Piper Sandler analyst Arvind Ramnani downgraded the stock to a neutral rating from overweight on Tuesday and lowered its price target on the stock to $44 from $230. The new price prediction implies a 75% drop from Upstart’s close on Monday.

“The range of results for UPST has increased amid macro uncertainties,” Ramnani said in the note. “We believe there could be further downside given the speed and intensity of a recession.”