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What is Upstart Holdings and why has its stock plummeted?

The artificial intelligence lending platform enjoyed a hugely successful 2021 after going public, but is now suffering major losses.

Upstart Holdings slumps in the markets
Lucas JacksonREUTERS

Investors with shares in Upstart Holdings Inc. have had a bumpy ride in recent months and the volatile stock lost around 60% from its market value on Tuesday after the company was forced to drastically reduce its economic forecast for the year.

The company offers loans and uses artificial intelligence to make lending decisions, a ground-breaking new approach in the field. However Upstart has blamed macroeconomic pressures for a drop in loan volume, which has reduced their revenue expectations for the year from $1.4 billion to $1.25 billion.

In recent months the consumer interest rates have risen sharply. Chief Executive Dave Girouard admitted that “on the margin, a whole bunch of people that would have been approved are no longer approved.”

“So there’s a whole bunch of loans that just never happened at all, and there’s a bunch of people that are still approved, but the interest rate is a few percentage points higher, and a certain fraction of them are going to decide that’s not the product that they want.”

Why has Upstart Holdings downgraded its forecast?

Upstart may have expected to enjoy a fairly profitable year in 2022 as the American economy powers up again after the prolonged lull of the recession. Across the board, prices are on the up and there appears confidence in continued growth, but the economic volatility appears to have cause problems for Upstart.

The company’s loan balance was a major topic of concern during an interview on Tuesday between Girouard and CNBC’s Jim Cramer.

On Monday, Upstart reported $604.4 million worth of loans on the company balance sheet as of 31 March. This is a considerable increase on the $260.8 million recorded in the fourth quarter of 2021. This leaves the company with greater liability for those loans, and in a riskier position should borrowers be unable to repay, or even cover the interest payments, on those loans.

With interest rates still sky-high, as confirmed in Wednesday’s CPI report from the Labor Department, many will be required to make higher repayments than they had initially thought.

Upstart enjoyed a strong 2021 having gone public in December 2020. The company’s stock enjoyed fairly consistent growth throughout the year, reaching a peak of $390 per share on 15 October. However as the Federal Reserve has become more hawkish in a bid to slow the rate of inflation, investors have moved away from high-flying assets.

When the markets closed on Tuesday, Upstart was around 91% down on its October peak.


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