Personal, auto, and home loan fintech shares above (NASDAQ: UPST ) It sank 30.6% in February, according to data from S&P Global Market Intelligence.
The upstart reported fourth-quarter earnings that looked really positive at first glance; However, some investors take this to mean that new lending products may have lower margins in the future. In addition, the upstart also announced a CEO transition, which may have added to the uncertainty and contributed to the sales freeze.
Will AI create the world’s first trillionaire? Our team just published a report on a little-known company, called “Essential Dependency” that provides critical technology to both Nvidia and Intel. Continue »
In the fourth quarter, Upstart’s revenue grew 35.2% to $296.1 million, with earnings per share of $0.17, relative to a smaller loss in the year-ago quarter. Both figures were expected by analysts.
Additionally, management guided for better-than-expected revenue next year, forecasting $1.4 billion in 2026 revenue, above the Wall Street consensus of $1.27 billion.
The initial reaction to these earnings was actually positive when it was first reported, before turning negative the next day. This could be for several reasons.
First, Upstart announced a change in CEO, with co-founder Paul Guo joining Upstart’s other co-founder, Dave Girard, who will become chairman. But while CEO transitions sometimes cause sales to stall due to uncertainty, this one seems to offer considerable continuity, and doesn’t appear to be a negative catalyst. Despite being a co-founder of the upstart, Go is much younger than Gerhard, so it seems like a natural handshake.
A more likely reason could be the upstart’s concern about the “rate” of the loans it incurs. Remember, Upstart uses AI to create loans for borrowers who may not qualify for a loan, and it does not have a banking license that would allow it to hold its loans against deposits. So, the company depends on foreign loan buyers for growth.
And while consumers certainly returned to buying upstart loans after the 2023 regional banking crisis, it appears they’re not paying as much per loan. Even last quarter, while revenue was up 35%, originations were up 52%, showing lower revenue on loans sold than last year. And while management is forecasting very strong top-line growth next year, it is also projecting an adjusted EBITDA margin of 21% for 2026. This would be a one percentage point margin reduction from the fourth quarter mark. Typically, margins increase rather than decrease with company size.
