The upstart share plummets as the income outlook for the full year is cut

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Shares of

Emergence fell almost 60% on Tuesday after the artificial intelligence lending company cut its full-year earnings outlook, noting the potential for a recession.

Upstart (ticker: UPST) said they expect revenue in 2022 of around $ 1.25 billion, down from the previous forecast of $ 1.4 billion. The company said revenue in the second quarter will be around $ 295 million to $ 305 million, below Wall Street’s forecasts of $ 335 million.

“Although this year looks set to be a challenging year for the economy, we know the exercise and are confident that we can navigate whatever 2022 and beyond may bring,” CEO Dave Girouard said in a press release.

At the company’s conference call, the CEO noted the aggressive measures taken by the Federal Reserve to cool inflation by raising interest rates.

“Given the hawkish signals from the Fed, we expect prices to move even higher later this year, which will have the effect of reducing our transaction volume, all else being equal,” Girouard said.

Emerging chief financial officer Sanjay Datta also highlighted rising interest rates, saying that higher inflation and monetary tightening from the Fed indicated “the non-trivial risk of a potential recession later this year”.

“Given the general macroeconomic uncertainty and the dawning prospects of a recession later this year, we have considered it justifiable to reflect a higher degree of conservatism in our expectations going forward,” Datta added.

Upstart reported adjusted earnings of 61 cents per share for the first quarter, beating forecasts of 53 cents and revenue of $ 310.1 million, higher than estimates of $ 300 million.

Analysts at Citi downgraded the stock to neutral from buying, cutting the price target to $ 50 from $ 180.

“Upstart’s AI appears to be transitioning under stable-to-benign credit terms, although it is clear now (compressed conversion) that the platform is taking time to adapt to the deteriorating macro,” analysts wrote in a research note. “The key question now is (i) will consumer credit worsen compared to pre-Covid, (ii) will funding sources curb their appetite, and (iii) will the Upstart cut the outlook enough?”

Jefferies analysts rate Upstart shares on Hold. They lowered the stock price target to $ 65 from $ 85, saying that new growth for Upstart, “which is estimated to come from the recently launched car loan product” was also upwind.

Piper Sandler downgraded the stock to neutral from overweight and drastically reduced the price target to $ 44 from $ 230. Analysts said that the total loan volumes at Upstart “are expected to fall, given high lending rates (and the probability that they will be moved higher).”

“We expect that there may be additional disadvantages based on the speed and intensity of a recession,” Piper Sandler analysts added in a note.

Upstart shares fell 59.7% to $ 31.10 on Tuesday. The stock has fallen almost 77% in 2022.

Write to Joe Woelfel at joseph.woelfel@barrons.com