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Why Is Upstart Stock Down Despite Growth? 5 Things to Know

Are investors overreacting with UPST stock down over 90% from its ATHs? Or is it time to give up on Upstart stock?
The post Why Is Upstart Stock Down Despite…



Despite beating first-quarter expectations and showing strong growth, Upstart stock is down 75% YTD. In fact, Upstart Holdings (Nasdaq: UPST) posted its fourth straight quarter with over 100% YOY revenue growth.

Although this may be true, Upstart stock lost over half its value following the earnings report. Investors quickly sold shares after learning about the company’s plans to hold excess loans on its balance sheet.

The Federal Reserve’s aggressive rate hikes to cool surging inflation is causing less interest in borrowing. As a result, Upstart said it would hold the unsold loans on its balance sheet, countering its previous business model.

The investor reaction is causing management to backtrack. According to a report from the WSJ, the company’s CFO has other plans to deal with the extra loans.

After a steep selloff yesterday, the stock market officially entered a bear market. Are investors overreacting with UPST stock down over 90% from its ATHs? Or is it time to give up on Upstart Holdings? Here are five things to know about Upstart stock and what you can expect going forward.

No. 5 Q1 Earnings Beat

Upstart’s first-quarter earnings mark its seventh profitable quarter in a row. Loan transaction volume surged 174% YOY to 465K with over 350K new borrowers.

The company easily beat both top and bottom-line expectations.

  • EPS: 0.61 vs 0.53 exp.
  • Revenue: $310 million vs. $300 million exp.

Not only did Upstart stock generate more revenue, but they are converting it into earnings. Net income skyrocketed 224% YOY, reaching $32.7 million.

So far, Upstart’s algorithms are helping get loans into borrowers’ hands which may not be able to get approved otherwise. For instance, the company notes 74% of users get instant approval without document uploads or calls.

Though the quarter shows solid growth in most areas, there are a few red flags. For one thing, higher interest rates are starting to deter borrowing.

The pandemic caused massive consumer spending between interest rates dropping and government assistance. As a result, Upstart saw strong demand for its services. Moreover, consumers were less likely to default, driving credit performance up.

Upstart generates earnings primarily in one of two ways. First, they earn a fee for loan referrals from banks. And secondly, banks pay a fee when they find a loan through the Upstart Platform.

With this in mind, default rates are creeping back up while consumer loans remain at an all-time high. For this reason, investors are skeptical about the company’s future.

No. 4 Slowing Demand for Loans

Although the company continues delivering strong growth, management is lowering its guidance. On the recent earnings call, CEO David Girouard mentions a few critical factors.

  1. Higher underlying base rates
  2. Investors demanding risk premium

The Fed manages interest rates to influence the economy. During the pandemic, the discount rate was set to a historical low of 0.25% to encourage economic growth. As a result, consumer spending shot up.

Consequently, demand is getting overheated while supply is lacking in many areas. For example, many gas and oil companies went out of business during the pandemic while energy demand fell. Now that people are returning to their everyday lives (work, travel, etc.), demand is back to pre-pandemic levels.

The demand imbalance is causing inflation to soar. As demand rises, prices also rise unless supply can meet it. Accordingly, the Consumer Price Index (CPI), a popular measure of inflation, is up 8.6% from last year.

No. 3 Inflation and Upstart Stock

Inflation may have more to do with Upstart stock than you think. For one thing, the Fed is trying to discourage buying (demand) to cool inflation by raising interest rates. Yet, for Upstart, this directly affects its business. Upstart makes money from consumers buying loans.

With higher interest rates on loans, people are less willing to borrow. As a result, a few weeks ago, Upstart hinted it would be putting the excess loans on its balance sheet.

Many investors took to Upstart stock because of its lower risk balance sheet. The idea of swelling the balance sheet for anything other than R&D was not in the plans. So, Upstart stock fell over 61% after earnings as investors fled for safer assets.

On top of this, as David mentions on the earnings call, investors are demanding risk premiums. In other words, in this environment, investors are less willing to pay for risky assets.

For example, unprofitable growth stocks are some of the worst-hit during this market selloff. The investor mindset is shifting from growth to value as cash flow, and returns are the primary concern.

Therefore, management is backtracking on its comments. Instead of holding loans on its balance sheet, it will scale back lending volume.

Keep reading to learn what this means for Upstart stock as we advance.

No. 2 Upstart to Scale Back Lending Volume

According to the WSJ report, Upstart CFO Sanjay Datta says the company will “likely scale back its lending volume” if demand weakens. In contrast to the company’s previous comments, they will not be placing temporary loans on the balance sheet.

Datta mentions being “a bit caught off guard” by the reaction. Seeing how other growth companies sold off aggressively, investors were not waiting to see if weakening demand is temporary or not.

Upstart stock has mostly used its balance sheet for new investments, like auto lending. So, the extra $150 million meant more risk for investors.

Upstart is trying to expand into other ventures to expand its market potential. The auto market is an ample opportunity for Upstart as the company already has partnerships with 35 different OEMs.

So far, the auto segment has tripled its dealership partners while almost doubling transactions. With this in mind, Upstart predicts the auto segment will bring its addressable market to $751 billion. Vehicles are one of the biggest markets for loans, so this may be the start of something.

No. 1 Upstart Stock Forecast: UPST Stock Oversold?

The company listening to investors and reflecting on its previous comments is positive news. But Upstart stock is still well below pre-earnings levels.

At the same time, the market selloff is leaving no stones unturned. This week we are seeing energy stocks and healthcare, two safer sectors this year, join the selloff.

The big question as we advance will be how much demand will Upstart see as interest rates rise. Fed officials are meeting again this week to discuss one of the biggest interest rate hikes in recent memory.

Will the hikes have more of an effect on Upstart stock? Or is it already priced in? We can’t predict if and by how much the Fed will raise interest rates. But what we can do is plan ahead.

Upstart stock is already down over 90% from its all-time highs of over $400 per share. Yet this doesn’t mean it can’t go lower. If you are looking for a high-risk, high-reward setup at these levels, you may find some luck with UPST stock. But, with several interest rate hikes on the horizon this year, look for continued pressure this year.

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VanEck to donate 10% of profits from Ether ETF to core developers

The Protocol Guild, a team of over 150 Ethereum core developers, will be the beneficiary. VanEck argues that asset managers should give back some Ether…



The Protocol Guild, a team of over 150 Ethereum core developers, will be the beneficiary. VanEck argues that asset managers should give back some Ether ETF proceeds to the community.

Global asset manager VanEck will donate 10% of all profits from its upcoming Ether futures exchange-traded fund (ETF) to Ethereum core developers for 10 years, the company announced on X (formerly Twitter) on Sept. 29. 

The beneficiary will be the Protocol Guild, a group of over 150 developers maintaining Ethereum’s core technology. According to VanEck, it’s only fair for asset managers to return part of their proceeds to the community building the crypto protocol. It stated:

“If TradFi stands to gain from the efforts of Ethereum’s core contributors, it makes sense that we also give back to their work. We urge other asset managers/ETF issuers to consider also giving back in the same way.“

With this move, VanEck joins other crypto-native communities supporting the Ethereum network, including Lido Finance, Uniswap, Arbitrum, Optimism, ENS Domains, MolochDAO and Nouns DAO.

According to a public dashboard tracking donations sent to the Guild’s mainnet, 4,846 contributions have generated over $12 million in donations. Funds are then distributed among its members according to a weighted ratio based on their contribution periods.

The network core developers are reportedly working on Ethereum Improvement Proposal EIP-4844 (Proto-Danksharding). The upgrade will introduce a new kind of transaction type to Ethereum, promising to reduce transaction fees for layer-2 protocols.

VanEck disclosed its upcoming Ethereum Strategy ETF on Sept. 28, saying it will invest in Ether futures contracts. The fund will be actively managed by Greg Krenzer, head of active trading at VanEck, and is expected to be listed on the Chicago Board Options Exchange in the coming days.

Other traditional investment firms set to offer exposure to Ether futures include Valkyrie and Bitwise, while the line for a spot Ether ETF keeps growing with Invesco Galaxy, ARK 21Shares and VanEck waiting for regulatory approval. The United States Securities and Exchange Commission (SEC) recently delayed a decision on whether to approve a spot Ether product until December.

Magazine: Joe Lubin — The truth about ETH founders split and ‘Crypto Google’

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FTX exploiter moved over $17M in ETH in the last 24 hours

A significant portion of the 7,749 ETH, worth roughly $13 million, was directed toward the THORChain router and Railgun contract.



A significant portion of the 7,749 ETH, worth roughly $13 million, was directed toward the THORChain router and Railgun contract.

According to recent information from Spot On Chain, an address linked to the FTX exploit identified as 0x3e9, has conducted transfers exceeding 10,000 Ether (ETH), worth roughly $17 million, across five different addresses since Sept. 30. The addresses had remained inactive for several months before the recent activity.

Within these transactions, a significant portion of 7,749 ETH, equivalent to $13 million, was directed toward the Thorchain router and Railgun contract. Furthermore, the exploiter engaged in a swap involving 2,500 ETH, valued at $4.19 million, converting it into 153.4 tBTC at an average rate of $27,281 per token. This address, which has recently become active, has exhibited noteworthy activity and is anticipated to continue transferring ETH, most likely to Thorchain.

At the time of the initial hack on Saturday, Sept. 30, the approximate losses amounted to nearly 50,000 ETH. This incident occurred just a short while before SBF's criminal trial scheduled for Oct. 2023.

Nevertheless, these occurrences have generated a significant amount of downward pressure on the ETH price, which currently maintains a level slightly above $1,650. This situation arises as the market anticipates the introduction of Ethereum futures ETFs on Monday, Oct. 2.

FTX co-founder Sam Bankman-Fried, commonly known as SBF, is scheduled to go to trial in October. This comes after his arrest in The Bahamas and subsequent extradition to the United States, marking several months since these events occurred.

The trial is expected to last for six weeks, beginning with the selection of the jury on Oct. 3, followed by the initial court proceedings on Oct. 4. Bankman-Fried faces a total of seven charges connected to fraudulent activities, comprising two substantive charges and five conspiracy charges.

Related: Valkyrie backtracks on Ether futures contract purchases until ETF launch

During the legal proceedings, the FTX founder has consistently pleaded not guilty to all allegations. Despite numerous attempts to secure temporary release, Bankman-Fried continues to be held in custody at the Metropolitan Detention Center. His most recent request for release was denied by Judge Lewis Kaplan, citing concerns about the possibility of him fleeing.

Magazine: Can you trust crypto exchanges after the collapse of FTX?

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SEC initiates legal action against FTX’s auditor

The SEC alleges that Prager Metis, an accounting firm engaged by bankrupt crypto exchange FTX in 2021, committed hundreds of violations related to auditor…



The SEC alleges that Prager Metis, an accounting firm engaged by bankrupt crypto exchange FTX in 2021, committed hundreds of violations related to auditor independence.

The United States Securities and Exchange Commission (SEC) has commenced legal proceedings against an accounting firm that had provided services to cryptocurrency exchange FTX before its bankruptcy declaration.

According to a Sept. 29 statement, the SEC alleged that accounting firm Prager Metis provided auditing services to its clients without maintaining the necessary independence as it continued to offer accounting services. This practice is prohibited under the auditor independence framework.

Extract from the SEC's September 29 statement. Source: SEC

To prevent conflicts of interest, accounting and audit tasks must be kept clearly separate. However, the SEC claims that these entwined activities spanned over a period of approximately three years:

“As alleged in our complaint, over a period of nearly three years, Prager’s audits, reviews, and exams fell short of these fundamental principles. Our complaint is an important reminder that auditor independence is crucial to investor protection.”

While the statement doesn't explicitly mention FTX or any other clients, it does emphasize that there were allegedly "hundreds" of auditor independence violations throughout the three-year period.

Furthermore, a previous court filing pointed out that the FTX Group engaged Metis to audit FTX US and FTX at some point in 2021. Subsequently, FTX declared bankruptcy in November 2022. 

The filing alleged that since former FTX CEO Sam Bankman-Fried publicly announced previous FTX audit results, Metis should have recognized that its work would be used by FTX to bolster public trust.

Related: FTX founder’s plea for temporary release should be denied, prosecution says

Concerns were previously reported about the material presented in FTX audit reports.

On Jan. 25, current FTX CEO John J. Ray III told a bankruptcy court that he had “substantial concerns as to the information presented in these audited financial statements.”

Furthermore, Senators Elizabeth Warren and Ron Wyden raised concerns about Prager Metis' impartiality. They argued that it functioned as an advocate for the crypto industry.

Meanwhile, a law firm that provided services to FTX has come under scrutiny in recent times.

In a Sept. 21 court filing, plaintiffs allege that U.S. based law firm, Fenwick & West, should be held partially liable for FTX's collapse because it reportedly exceeded the norm when it came to its service offerings to the exchange.

However, Fenwick & West asserts that it cannot be held accountable for a client's misconduct as long as its actions remain within the bounds of the client's representation.

Magazine: Blockchain detectives: Mt. Gox collapse saw birth of Chainalysis

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