Upstart Q2 2022 not looking good

Investment Analysis Clubs Saul’s Investing Discussions
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Second Quarter 2022 Preliminary Unaudited Financial Results:
* Revenue is expected to be approximately $228 million, previously guided at $295 to $305 million
* Contribution margin is expected to be approximately 47%, previously guided at approximately 45%
* Net Income (loss) is expected to be in the range of ($31)-($27) million, previously guided at ($4) to $0 million

“Inflation and recession fears have driven interest rates up and put banks and capital markets on cautious footing,” said Dave Girouard, co-founder and CEO of Upstart. “Our revenue was negatively impacted by two factors approximately equally. First, our marketplace is funding constrained, largely driven by concerns about the macroeconomy among lenders and capital market participants. Second, in Q2, we took action to convert loans on our balance sheet into cash, which, given the quickly increasing rate environment, negatively impacted our revenue.”

[…]

https://ir.upstart.com/news-releases/news-release-details/up…

Formal results will be released 8/8/2022 AMC.

Chuck
who still holds UPST

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Ouch!

I had a feeling something like this was coming. A couple of days ago I was going through the Glassdoor reviews for all my companies, especially looking at the “most recent” reviews. First on the list for Upstart was a five-star review from July 1, 2022. But the person wrote the following under “Cons”–

I honestly can’t complain. The cofounders are transparent. They take live Q&A every Friday during TGIF. There are current macro concerns (which is why I marked thumbs down for 6 month outlook) but Upstart seems to be in pretty good shape.

So there you have it from an anonymous, but current, employee. Stock price will stay beaten up for awhile, and is a good bit worse since this announcement. My thesis for the company is not broken, as far as I can tell.

I do wonder about them converting the loans on their balance sheet to cash. I assume they just converted the surprise extra loans they were holding for the sake of liquidity and not their R&D loans, but that wasn’t clear to me in the announcement.

JabbokRiver
Still holding

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I was going through the Glassdoor reviews for all my companies, especially looking at the “most recent” reviews. First on the list for Upstart was a five-star review from July 1, 2022.

JabbokRIver, Is it possible that you are using an anonymous glassdoor review to blur over the horrific preliminary numbers Upstart just released?

The numbers:

Revised Q2 2022 est of $228 mil would be an increase of only 17.5%. YoY from 2nd qrt 2021 (194mil)

Far, far worse are the QoQ numbers this year from Q1 revenue of $310mil to Q2 estimate of $228mil, which would be:

-26.4% QoQ. No, that’s not a typo. Revenue is expected to decrease 26.4% QoQ.

For those holding Upstart shares, I hope things turn around eventually. Until then, I think there are better companies with more trustworthy leadership for my capital.

Best,

Brian

PS. Since this is a “follow the numbers” board, I thought it was important to show the YoY and QoQ numbers. But, I don’t see any other companies growing only 17.5% YoY or, worse, decreasing 26.4% QoQ being discussed on Saul’s board. So, please respond via email, if you want to discuss further.

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Revised Q2 2022 est of $228 mil would be an increase of only 17.5%. YoY from 2nd qrt 2021 (194mil)

Upstart is no longer a hypergrowth company…at 17.5% yoy revenue growth, not hypergrowth by a very long shot so OT for this board. Jon actually pointed this out last q already here: https://discussion.fool.com/my-original-upst-post-mortem-post-wa…

If anything, it is a turnaround story, so OT by a second criteria too.

Lastly this release from them just put the final, final, final nail in the proverbial coffin imho.

Just look at the last 2 guides and now this:

Feb 15th 2022

For the full year 2022, we expect revenue of approximately $1.4 billion, representing a growth rate of approximately 65% from the prior year; contribution margin of approximately 45%; adjusted EBITDA of approximately 17%; and an auto loan transaction volume of approximately $1.5 billion.

May 9th 2022

For the full year 2022, we now expect revenue of approximately $1.25 billion, representing a growth rate of approximately 47% from the prior year, down from $1.4 billion guided last quarter; contribution margin of approximately 48%; adjusted EBITDA of approximately 15%.

For Q2 of 2022, we are expecting revenues of $295 million to $305 million, representing year-over-year growth rate of 55% at the midpoint; contribution margin of approximately 45%; net income of negative $4 million to $0 million

→ That’s a 10.7% drop in full-year guidance, dropping your yoy growth by 18%pts in just 3 months. They also guided for a sequential slow-down in revenue from $310m to Q2 #305m, but which would at least still have been good for 57% yoy.

July 7th 2022

Second Quarter 2022 Preliminary Unaudited Financial Results:

Revenue is expected to be approximately $228 million, previously guided at $295 to $305 million
Contribution margin is expected to be approximately 47%, previously guided at approximately 45%
Net Income (loss) is expected to be in the range of ($31)-($27) million, previously guided at ($4) to $0 million.

→ That’s a 25.2% miss vs the lowered Q2 revenue guide of $305m of just two months ago! and now only good for 17.5% yoy growth and a 26% qoq contraction.

They probably released the prelim numbers because they had to as it was just so far off their prior guide…

In addition to the fact that this is just not good performance, how can you ever trust management again after this? I was an Upstart bull for quite a while, but a key underpinning of that was that I trusted management to have a better view of the business than others out there. However, contrary to Girouard’s contention that the market “misunderstands” Upstart, I now think the market understands Upstart pretty well, thank you very much - perhaps better than management, who, quite frankly, seem quite clueless about their own business performance to me in the above context.

-WSM.

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It was the best of times, it was the worst of times. Remember when they posted that 1000% YOY in Q2 2021? Same as what we see here, just with polar opposite financial conditions thus the opposite directional move.

Management has little to no historical precedent to help forecast their revenues during a rapidly tightening credit market like this. Honestly, I’m surprised they did as well as they did in Q2. They had an -exceptionally- easy credit fueled surge of growth in 2021 (as did all of our companies, as well as every company in the world) and the spigot has been shut off, sealed, and all the pipes drained. I know we don’t like to talk macro here, but for these guys, this doesn’t just affect their business, it literally IS their business.

Ironically, this company is destined for another massive YOY beat at some point as the Fed continues to tighten the economy into submission before reversing course to lift us out of the very inflation-killing recession they’ve been desperate to cause.

If that sounds like a fun roller coaster ride to you, Upstart is the perfect vehicle!

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I do wonder about them converting the loans on their balance sheet to cash. I assume they just converted the surprise extra loans they were holding for the sake of liquidity and not their R&D loans, but that wasn’t clear to me in the announcement.

With the transition of their automobile refinance loans to a commercial product rather than R&D, it could be that they are clearing their books of those loans, too, or at least reducing them.

My thesis for the company is not broken, as far as I can tell.

I agree. Yes the macro situation is shrinking their revenue Q over Q, but I see no danger that the company is in financial trouble, and their AI model is reportedly performing as expected in terms of predicting risk even as the macro environment changes. They’ve moved into commercializing the auto refinance loans and continue to add new lending partners. We can expect them to commercialize new purchase auto loans as well before long.

I expect growth will be back gangbusters when the macro environment eases, lenders loosen back up a little, and UPST’s loans have more history in this environment. Krugman has a column up today saying the signs are that inflation is starting to ease. He’s just worried that the Fed will keep tightening longer than necessary and cause a recession they didn’t have to.

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I expect growth will be back gangbusters when the macro environment eases, lenders loosen back up a little, and UPST’s loans have more history in this environment. Krugman has a column up today saying the signs are that inflation is starting to ease. He’s just worried that the Fed will keep tightening longer than necessary and cause a recession they didn’t have to

UPST Price falls below a critical support level today at $27/share. The 70% Sell Off from May 4th to May 11th bottomed at $28/share.

Regarding the Fed: Powell, before The Senate Banking Committee, stated that the Federal Reserve rate hikes have no influence over Energy Prices nor Food/Consumables Prices. The only rationale in rate hikes according to Powell is to control wage inflation and that means that unemployment has to increase to a significant number before wage inflation eases; this will take Fed rate hikes into 2023. The Fed just said yesterday… “higher rates may be needed to quell inflation” meaning that higher unemployment and layoffs are the goal.
Krugman’s remarks are related to energy prices going forward and that is not of interest to the Federal Reserve, look forward to at least two more key rate increases.

Still looking for a point to buy UPST

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I don’t get it, katonah and WSM have explained quite clearly that UPST isn’t hypergrowth at all. it’s hypo-growth, or actually, “hyper-negative-growth” today. This company very objectively doesn’t belong on this board anymore. But we still have more posts trying to spin things into a positive light or discussing the irrelevant nuances of the UPST loan industry.

It’s fascinating how we have posters swearing off ZScaler for deceleration in billings but still expect ZS to grow +50% anyway, while we have other posters clinging tightly to UPST despite a deeply cut revenue guidance into negative -26% QoQ territory. The hypergrowth thesis for UPST is very much broken. It’s as clear as 2 + 2 = 4.

Now, I don’t wish for any replies to this as UPST is too off topic now for the board - I am only trying to be helpful: to those who plan to still hold UPST, I recommend tracking Trustpilot numbers. In the past it’s been mentioned multiple times how Trustpilot review counts have tightly correlated with UPST’s business activity and loan volume.

Here are the monthly Trustpilot review counts:
Jan 2918
Feb 2158
Mar 2428
Apr 2178
May 1732
Jun 1174

Q1 has 7504 total
Q2 has 5084 total
That’s a -32% QoQ drop. Anyone tracking the daily counts could have recognized this plunge coming in May and sold out accordingly when the stock price briefly rebounded to $50-54 range (twice), which is literally +100% above what the price closed at today of $27.

Something else to note here. June’s activity is -60% that of January.
What happens if you make assumptions for the rest of the year? What if in the second half of 2022, UPST can’t give out monthly loans higher than May or June’s totals?

It certainly doesn’t look good so far that July’s average daily counts are at 26 (although it includes July 4 holiday) while June’s avg daily was 39.

Don’t be shocked if the CEO guides down to 900M in FY total revenue on the next report.
Or if they don’t guide down far enough, then they could miss revenue targets again for the next two quarters.
I would keep track of the counts carefully, which is very easy to do on the website’s “reviews over time” graph: https://www.trustpilot.com/review/www.upstart.com/transparen…

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