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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?
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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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Analyst reviews Apple stock price target amid challenges

Here’s what could happen to Apple shares next.

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March 12, 2024

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They said it was bound to happen.

It was Jan. 11, 2024 when software giant Microsoft  (MSFT)  briefly passed Apple  (AAPL)  as the most valuable company in the world.

Microsoft's stock closed 0.5% higher, giving it a market valuation of $2.859 trillion. 

It rose as much as 2% during the session and the company was briefly worth $2.903 trillion. Apple closed 0.3% lower, giving the company a market capitalization of $2.886 trillion. 

"It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution," D.A. Davidson analyst Gil Luria said at the time, according to Reuters.

The two tech titans have jostled for top spot over the years and Microsoft was ahead at last check, with a market cap of $3.085 trillion, compared with Apple's value of $2.684 trillion.

Analysts noted that Apple had been dealing with weakening demand, including for the iPhone, the company’s main source of revenue. 

Demand in China, a major market, has slumped as the country's economy makes a slow recovery from the pandemic and competition from Huawei.

Sales in China of Apple's iPhone fell by 24% in the first six weeks of 2024 compared with a year earlier, according to research firm Counterpoint, as the company contended with stiff competition from a resurgent Huawei "while getting squeezed in the middle on aggressive pricing from the likes of OPPO, vivo and Xiaomi," said senior Analyst Mengmeng Zhang.

“Although the iPhone 15 is a great device, it has no significant upgrades from the previous version, so consumers feel fine holding on to the older-generation iPhones for now," he said.

A man scrolling through Netflix on an Apple iPad Pro. Photo by Phil Barker/Future Publishing via Getty Images.

Future Publishing/Getty Images

Big plans for China

Counterpoint said that the first six weeks of 2023 saw abnormally high numbers with significant unit sales being deferred from December 2022 due to production issues.

Apple is planning to open its eighth store in Shanghai – and its 47th across China – on March 21.

Related: Tech News Now: OpenAI says Musk contract 'never existed', Xiaomi's EV, and more

The company also plans to expand its research centre in Shanghai to support all of its product lines and open a new lab in southern tech hub Shenzhen later this year, according to the South China Morning Post.

Meanwhile, over in Europe, Apple announced changes to comply with the European Union's Digital Markets Act (DMA), which went into effect last week, Reuters reported on March 12.

Beginning this spring, software developers operating in Europe will be able to distribute apps to EU customers directly from their own websites instead of through the App Store.

"To reflect the DMA’s changes, users in the EU can install apps from alternative app marketplaces in iOS 17.4 and later," Apple said on its website, referring to the software platform that runs iPhones and iPads. 

"Users will be able to download an alternative marketplace app from the marketplace developer’s website," the company said.

Apple has also said it will appeal a $2 billion EU antitrust fine for thwarting competition from Spotify  (SPOT)  and other music streaming rivals via restrictions on the App Store.

The company's shares have suffered amid all this upheaval, but some analysts still see good things in Apple's future.

Bank of America Securities confirmed its positive stance on Apple, maintaining a buy rating with a steady price target of $225, according to Investing.com. 

The firm's analysis highlighted Apple's pricing strategy evolution since the introduction of the first iPhone in 2007, with initial prices set at $499 for the 4GB model and $599 for the 8GB model.

BofA said that Apple has consistently launched new iPhone models, including the Pro/Pro Max versions, to target the premium market. 

Analyst says Apple selloff 'overdone'

Concurrently, prices for previous models are typically reduced by about $100 with each new release. 

This strategy, coupled with installment plans from Apple and carriers, has contributed to the iPhone's installed base reaching a record 1.2 billion in 2023, the firm said.

More Tech Stocks:

Apple has effectively shifted its sales mix toward higher-value units despite experiencing slower unit sales, BofA said.

This trend is expected to persist and could help mitigate potential unit sales weaknesses, particularly in China. 

BofA also noted Apple's dominance in the high-end market, maintaining a market share of over 90% in the $1,000 and above price band for the past three years.

The firm also cited the anticipation of a multi-year iPhone cycle propelled by next-generation AI technology, robust services growth, and the potential for margin expansion.

On Monday, Evercore ISI analysts said they believed that the sell-off in the iPhone maker’s shares may be “overdone.”

The firm said that investors' growing preference for AI-focused stocks like Nvidia  (NVDA)  has led to a reallocation of funds away from Apple. 

In addition, Evercore said concerns over weakening demand in China, where Apple may be losing market share in the smartphone segment, have affected investor sentiment.

And then ongoing regulatory issues continue to have an impact on investor confidence in the world's second-biggest company.

“We think the sell-off is rather overdone, while we suspect there is strong valuation support at current levels to down 10%, there are three distinct drivers that could unlock upside on the stock from here – a) Cap allocation, b) AI inferencing, and c) Risk-off/defensive shift," the firm said in a research note.

Related: Veteran fund manager picks favorite stocks for 2024

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Major typhoid fever surveillance study in sub-Saharan Africa indicates need for the introduction of typhoid conjugate vaccines in endemic countries

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high…

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There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

Credit: IVI

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

 

The findings from this 4-year study, the Severe Typhoid in Africa (SETA) program, offers new typhoid fever burden estimates from six countries: Burkina Faso, Democratic Republic of the Congo (DRC), Ethiopia, Ghana, Madagascar, and Nigeria, with four countries recording more than 100 cases for every 100,000 person-years of observation, which is considered a high burden. The highest incidence of typhoid was found in DRC with 315 cases per 100,000 people while children between 2-14 years of age were shown to be at highest risk across all 25 study sites.

 

There are an estimated 12.5 to 16.3 million cases of typhoid every year with 140,000 deaths. However, with generic symptoms such as fever, fatigue, and abdominal pain, and the need for blood culture sampling to make a definitive diagnosis, it is difficult for governments to capture the true burden of typhoid in their countries.

 

“Our goal through SETA was to address these gaps in typhoid disease burden data,” said lead author Dr. Florian Marks, Deputy Director General of the International Vaccine Institute (IVI). “Our estimates indicate that introduction of TCV in endemic settings would go to lengths in protecting communities, especially school-aged children, against this potentially deadly—but preventable—disease.”

 

In addition to disease incidence, this study also showed that the emergence of antimicrobial resistance (AMR) in Salmonella Typhi, the bacteria that causes typhoid fever, has led to more reliance beyond the traditional first line of antibiotic treatment. If left untreated, severe cases of the disease can lead to intestinal perforation and even death. This suggests that prevention through vaccination may play a critical role in not only protecting against typhoid fever but reducing the spread of drug-resistant strains of the bacteria.

 

There are two TCVs prequalified by the World Health Organization (WHO) and available through Gavi, the Vaccine Alliance. In February 2024, IVI and SK bioscience announced that a third TCV, SKYTyphoid™, also achieved WHO PQ, paving the way for public procurement and increasing the global supply.

 

Alongside the SETA disease burden study, IVI has been working with colleagues in three African countries to show the real-world impact of TCV vaccination. These studies include a cluster-randomized trial in Agogo, Ghana and two effectiveness studies following mass vaccination in Kisantu, DRC and Imerintsiatosika, Madagascar.

 

Dr. Birkneh Tilahun Tadesse, Associate Director General at IVI and Head of the Real-World Evidence Department, explains, “Through these vaccine effectiveness studies, we aim to show the full public health value of TCV in settings that are directly impacted by a high burden of typhoid fever.” He adds, “Our final objective of course is to eliminate typhoid or to at least reduce the burden to low incidence levels, and that’s what we are attempting in Fiji with an island-wide vaccination campaign.”

 

As more countries in typhoid endemic countries, namely in sub-Saharan Africa and South Asia, consider TCV in national immunization programs, these data will help inform evidence-based policy decisions around typhoid prevention and control.

 

###

 

About the International Vaccine Institute (IVI)
The International Vaccine Institute (IVI) is a non-profit international organization established in 1997 at the initiative of the United Nations Development Programme with a mission to discover, develop, and deliver safe, effective, and affordable vaccines for global health.

IVI’s current portfolio includes vaccines at all stages of pre-clinical and clinical development for infectious diseases that disproportionately affect low- and middle-income countries, such as cholera, typhoid, chikungunya, shigella, salmonella, schistosomiasis, hepatitis E, HPV, COVID-19, and more. IVI developed the world’s first low-cost oral cholera vaccine, pre-qualified by the World Health Organization (WHO) and developed a new-generation typhoid conjugate vaccine that is recently pre-qualified by WHO.

IVI is headquartered in Seoul, Republic of Korea with a Europe Regional Office in Sweden, a Country Office in Austria, and Collaborating Centers in Ghana, Ethiopia, and Madagascar. 39 countries and the WHO are members of IVI, and the governments of the Republic of Korea, Sweden, India, Finland, and Thailand provide state funding. For more information, please visit https://www.ivi.int.

 

CONTACT

Aerie Em, Global Communications & Advocacy Manager
+82 2 881 1386 | aerie.em@ivi.int

Journal

The Lancet Global Health

Method of Research

Observational study

Subject of Research

People

Article Title

Incidence of typhoid fever in Burkina Faso, Democratic Republic of the Congo, Ethiopia, Ghana, Madagascar, and Nigeria (the Severe Typhoid in Africa programme): a population-based study

Article Publication Date

12-Mar-2024

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US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

Earlier today, CNBC’s…

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US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever... And Debt Explodes

Earlier today, CNBC's Brian Sullivan took a horse dose of Red Pills when, about six months after our readers, he learned that the US is issuing $1 trillion in debt every 100 days, which prompted him to rage tweet, (or rageX, not sure what the proper term is here) the following:

We’ve added 60% to national debt since 2018. Germany - a country with major economic woes - added ‘just’ 32%.   

Maybe it will never matter.   Maybe MMT is real.   Maybe we just cancel or inflate it out. Maybe career real estate borrowers or career politicians aren’t the answer.

I have no idea.  Only time will tell.   But it’s going to be fascinating to watch it play out.

He is right: it will be fascinating, and the latest budget deficit data simply confirmed that the day of reckoning will come very soon, certainly sooner than the two years that One River's Eric Peters predicted this weekend for the coming "US debt sustainability crisis."

According to the US Treasury, in February, the US collected $271 billion in various tax receipts, and spent $567 billion, more than double what it collected.

The two charts below show the divergence in US tax receipts which have flatlined (on a trailing 6M basis) since the covid pandemic in 2020 (with occasional stimmy-driven surges)...

... and spending which is about 50% higher compared to where it was in 2020.

The end result is that in February, the budget deficit rose to $296.3 billion, up 12.9% from a year prior, and the second highest February deficit on record.

And the punchline: on a cumulative basis, the budget deficit in fiscal 2024 which began on October 1, 2023 is now $828 billion, the second largest cumulative deficit through February on record, surpassed only by the peak covid year of 2021.

But wait there's more: because in a world where the US is spending more than twice what it is collecting, the endgame is clear: debt collapse, and while it won't be tomorrow, or the week after, it is coming... and it's also why the US is now selling $1 trillion in debt every 100 days just to keep operating (and absorbing all those millions of illegal immigrants who will keep voting democrat to preserve the socialist system of the US, so beloved by the Soros clan).

And it gets even worse, because we are now in the ponzi finance stage of the Minsky cycle, with total interest on the debt annualizing well above $1 trillion, and rising every day

... having already surpassed total US defense spending and soon to surpass total health spending and, finally all social security spending, the largest spending category of all, which means that US debt will now rise exponentially higher until the inevitable moment when the US dollar loses its reserve status and it all comes crashing down.

We conclude with another observation by CNBC's Brian Sullivan, who quotes an email by a DC strategist...

.. which lays out the proposed Biden budget as follows:

The budget deficit will growth another $16 TRILLION over next 10 years. Thats *with* the proposed massive tax hikes.

Without them the deficit will grow $19 trillion.

That's why you will hear the "deficit is being reduced by $3 trillion" over the decade.

No family budget or business could exist with this kind of math.

Of course, in the long run, neither can the US... and since neither party will ever cut the spending which everyone by now is so addicted to, the best anyone can do is start planning for the endgame.

Tyler Durden Tue, 03/12/2024 - 18:40

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