Where Will Upstart (NASDAQ: UPST) Shares Go After Q2 Earnings?

A 26% jump in a single session is one way for shares to react after an earnings report, and it’s exactly what those of Upstart (NASDAQ: UPST) did on Wednesday. It was only the company’s third report since going public towards the end of last year, and like the previous two, it didn’t disappoint. Both the top line and bottom line numbers came in well ahead of what analysts were expecting, with GAAP EPS, in particular, raising a few eyebrows with its 225% beat on the consensus. But the star of the show was the company’s revenue, which came in with a searing 1,000% jump on the same number from the second quarter of 2020. 

For investors, it was a feast of positivity. Not only were the numbers from last quarter exceptionally good, management issued forward guidance for the full year which was also better than expected. They’re now looking for full-year revenue of an impressive $750 million, versus prior guidance of $600 million, and compared to the consensus of $601 million. Their contribution margin is also forecasted to be better as is their adjusted EBITDA margin, which at 17% is a 70% improvement on their prior guidance. 

Massive Potential

Upstart is an AI-based lending platform that’s just the latest hot fintech that’s busy disrupting one of the world’s oldest industries. The Californian headquartered company was founded by ex-Google employees almost 10 years ago and is clearly doing something right. CEO Dave Girouard said with release; “our second-quarter results continue to show why Upstart has the potential to be among the world’s largest and most impactful fintechs. Lending is the center beam of revenue and profits in financial services and artificial intelligence may be the most transformational change to come to this industry in its 5,000 year history.”

Bullish words indeed, but you won’t find many on Wall Street accusing them of hyperbole. In the wake of Wednesday’s release, which sent shares to their highest-ever closing price, Citi were quick to upgrade their rating on the company. They moved them from Neutral to a Buy and boosted their price target by more than 80%. At $205, it suggests there’s still upside to be had in the region of 20% even after yesterday’s jump. One of the reasons for the bullish stance, in addition to the mighty prints, was due to an undisclosed bank partner eliminating its minimum FICO requirement for Upstart-powered loans. Citi thinks another bank partner may be about to do the same which would only accelerate Upstart’s market penetration.

Fresh Upgrades

Citi’s move echoes that of Goldman Sachs who didn’t need to wait for Q2 numbers when they initiated coverage of Upstart shares last month as they consolidated after dropping about 30% from June’s all time high. Analyst Michael Ng and his team made the move on the premise that the “fintech lender's artificial intelligence enables better borrowing selection, price efficiency, and ability to offer lower APRs for better risk-adjusted returns over the long-term.” Their $147 target was not only hit but smashed with yesterday’s move so it will be interesting to see if they come out with a fresh revision in the coming weeks.  

This latest earnings report and subsequent move in the stock are forming an attractive pattern for investors. Upstart’s Q1 numbers, released in May, were also well ahead of what analysts had expected and within a week had shares trading 60% higher than their pre-earnings prices. Similarly in March, the company’s Q4 report ticked all the boxes and was the catalyst for shares jumping by 200% in less than a week.

It remains to be seen if this week’s report can elicit the same response but all the fundamentals are at least in place to support it. Fintech is a red hot market right now and any company reporting four digit percentage year on year revenue growth is going to attract some attention. The company’s addressable market is only getting bigger and their AI technology can only get better. Don’t be surprised to see Upstart shares trading above $200 for the first time in the near future.