Upstart Holdings (UPST) has significantly multiplied its shareholders’ returns in 2021 (thanks to 475% year-to-date growth in its price) is under pressure.
What Went Wrong?
The stellar YTD rally in Upstart stock came on the back of the acceleration in its revenue and earnings growth rate. While Upstart’s Q3 financials continued to grow rapidly, the expected moderation in growth rate weighed in its stock price.
Upstart’s Q3 revenue increased by 250% year-over-year. However, the top-line growth rate moderated on a quarter-over-quarter basis. Upstart’s Q3 revenues increased by 18% sequentially compared to a 40% and 60% quarter-over-quarter growth in Q1 and Q2, respectively.
Moreover, Upstart expects to report Q4 revenues in the range of $255 million to $265 million. The guidance indicates a sequential increase of 12-16%, reflecting a further deceleration in the growth rate.
While Upstart’s revenue growth rate softened a bit, its adjusted net income fell 2% on a quarter-over-quarter basis. Further, the company expects to report adjusted net income in the range of $48 million to $50 million in Q4 that reflects a sequential decline of 13-17%.
The quarter-over-quarter decrease in Upstart’s earnings reflects increased investments in the technical workforce.
Valuation
Highlighting Upstart’s business strength and strong market conditions, John Hecht of Jefferies expected Upstart to deliver solid Q3 numbers. However, Hecht downgraded Upstart to Hold, citing its valuation.
He stated that the appreciation in Upstart stock already reflects “strong and successful market penetration in the personal and auto loan categories over the next few years.”
Wall Street’s Take
The steep rise in its stock price and valuation concerns keep Wall Street cautiously optimistic on Upstart. On TipRanks, UPST has received three Buys, two Holds, and one Sell for a Moderate Buy consensus rating.
Moreover, Upstart scores a 7 out of 10 from TipRanks’ Smart Score rating system, implying UPST stock could perform in line with the market averages.
The average Upstart Holdings price target of $317.83 implies 23.7% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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