Shares of Upstart (NASDAQ: UPST) were surging today after the struggling consumer lending platform posted better-than-expected results in the second quarter and offered upbeat guidance for the third quarter, showing that the business may finally be returning to growth.
As of 12:51 p.m. ET, the stock was up 48.6%.
Image source: Getty Images.
Upstart bounces back
Upstart, which uses an AI-based model to screen prospective lenders to better assess creditworthiness and default risk, has struggled with the high-interest-rate environment like most lending platforms.
Revenue fell 6% in the second quarter to $128 million and was flat sequentially, but that topped estimates at $124.5 million. The company originated 143,900 loans in the second quarter worth $1.1 billion, down 6% from the quarter a year ago, though conversion on rate requests improved from 9% in the quarter a year ago to 15%.
Contribution margin, which estimates the company's profit margin after variable expenses, was down from 67% to 58%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $9.3 million, compared to a profit of $11 million in the quarter a year ago. An increase in marketing expenses along with falling revenue were among the reasons for the decline in margins.
It also reported an adjusted per-share loss of $0.17, down from a profit of $0.06 per share but better than the consensus of a per-share loss of $0.39.
CEO Dave Girouard said, "The guidance we released today demonstrates that we're on track toward resuming our role as the fintech known for high growth and healthy margins."
Is Upstart turning around?
Upstart's guidance signaled that it was on the right track as it called for revenue of $150 million in the third quarter, up 11% from the quarter a year ago and better than the consensus at $135.4 million. It sees an adjusted EBITDA loss of $5 million but called for positive adjusted EBITDA in the fourth quarter.
Upstart's update alone doesn't seem to justify a 50% jump in the stock, but Upstart has always been highly volatile, and there's a lot of leverage in its business model. In addition to the expected improvements in the second half, investors also seem to be betting that the company will benefit from lower interest rates.
Should you invest $1,000 in Upstart right now?
Before you buy stock in Upstart, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Upstart wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $638,800!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 6, 2024
Jeremy Bowman has positions in Upstart. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
