Upstart's stock plunges as analysts see more pain ahead

By Emily Bary

Analysts note challenges related to loan demand and funding in the wake of earnings

An earlier version of this story misstated where Upstart's stock plunge ranks among recent declines. It has been corrected.

Upstart Holdings Inc. continues to find itself in a challenging spot as would-be borrowers back away from loans with high interest rates, and that's pushing its volatile stock even lower Wednesday.

"Loan demand -- not funding -- is the bottleneck on [Upstart's] originations," Barclays analyst Ramsey El-Assal wrote in response to Upstart's latest earnings report, which brought below-consensus results and a weak outlook.

See more: Upstart's stock gets hammered as earnings outlook comes in light

"As many prospective platform borrowers find themselves unfundable by [Upstart], or only fundable at 30%+ [annual percentage rates], we believe loan demand will remain weak in the near term," he continued, while continuing to rate the shares at equal weight with a $31 target price.

Upstart shares (UPST) were plunging 26% in morning trading Wednesday, which would make for their largest single-day percentage decline since they fell 34.2% on Aug. 9. The stock is down more than 94% from its all-time high of $390 set about two years ago.

Other analysts besides El-Assal acknowledged that the company's painful stretch could continue.

"We believe that [Upstart's] weak results/outlook are a function of a challenging macro and funding environment, rather than execution or structural issues," Needham's Kyle Peterson wrote. "However, we expect funding to remain difficult for the next few quarters, and believe investors will continue to focus more on credit metrics and other short-term [key performance indicators] over the [long-term] growth potential of the platform given the current stage in the credit cycle."

Read: Toast's stock crumbles after earnings, with outlook change deemed 'disappointing'

He noted that charge-offs increased in the September quarter, "and while most of the impact was in [Upstart's] R&D portfolios rather than the core personal loan products, we expect this to remain a focus area for investors" given the state of the credit cycle.

Peterson has a hold rating on the stock.

Wedbush's David Chiaverini weighed in on the potential for further funding-related pressures at Upstart.

"Management noted that committed capital is now a slightly larger source of funding compared to bank and traditional forward-flow investors," he wrote. "We believe this implies committed capital, which has theleast desirable economics of the funding channels given its loss-sharing component, is at least 40% of [Upstart's] funding base today and could be the biggest driver of growth in the near term."

Chiaverini holds an underperform rating and $10 target price on the stock.

-Emily Bary

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11-08-23 1144ET

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