Upstart stock drops after earnings, but CEO says he’s ‘confident’ in value

Executives at Upstart, which uses artificial intelligence to inform lending decisions, expect $170 million in revenue for the third quarter, whereas analysts were anticipating $249 million.

Shares sank about 15% in after-hours trading Monday after rising roughly 9% in the regular session.

In recent months, Upstart has experienced challenges with loan funding that executives discussed on the latest earnings call. While Upstart Chief Executive Dave Girouard said that the company’s bank partners “have seen consistently strong credit performance,” he noted that some “have paused or reduced originations due to fear about the future of the economy.”

Executives at Upstart have determined that they need to “upgrade and improve the funding side of our marketplace, bringing a significant amount of committed capital on board from partners who invest consistently through cycles,” he continued.

Additionally, the company acknowledged a changing approach to how it treats its own balance sheet during uncertain times.

“While we continue to believe that it doesn’t make sense for Upstart to become a bank, we’ve decided it may make sense to, at times, leverage our own balance sheet as a transitional bridge to this committed funding,” Girouard said. “I acknowledge that this is a shift relative to what we planned and communicated earlier this year but a changing and volatile environment suggests we need to be flexible and responsive in our approach.”

The shift reflects a belief among executives that they know “better than anybody how our model is performing today” and recognize that “the opportunity to generate outsized profits on our platform is unusually high right now,” he added.

For the second quarter, the company posted a net loss of $29.9 million, or 36 cents a share, whereas it recorded net income of $37.3 million, or 39 cents a share, in the year-earlier quarter. On an adjusted basis, Upstart posted per-share earnings of 1 cent, whereas it had logged adjusted earnings per share of 62 cents a year earlier.

Analysts tracked by FactSet had been projecting adjusted EPS of 3 cents.

Upstart’s total revenue rose to $228 million from $194 million, while the FactSet consensus was for $242 million. The company generated $258 million in fee revenue but saw the revenue total impacted by about $30 million in adjustments related to interest income and fair value.

When executives gave a preliminary update on the business in early July,…