• Upstart releases Q2 earnings post-market on Monday, August 8.
  • The Street has an average forecast of $0.08 in adjusted EPS on $235 million in revenue.
  • Upstart has beaten on top and bottom lines for all six of its earnings calls as a public company.

Upstart Holdings (UPST), the down-on-its-luck former pandemic star, has rallied 14% to $33.80 on Monday morning ahead of what appears to be a make-or-break second-quarter earnings call after the close. Though Upstart has a spotless record on earnings calls (it only has competed in six since IPO-ing in late 2020), all 11 of the company's EPS revisions in the past 90 days for Q2 have been downward revisions.

Also readCiti Stock Deep Dive: Earnings, Buffet factor support our BUY rating and $60 price target 

Upstart Holdings earnings

Wall Street analyst consensus puts the over/under for Upstart at $0.08 in adjusted earnings per share on revenue of $235 million for the second quarter. The analyst community is really lowering its expectations for the alternative loan platform this quarter. The first quarter saw Upstart produce $0.61 per share on $310 million in revenue. It is still important to note that though the EPS figure is a major decline from recent quarters, the revenue figure of $235 million is still a 21% advance YoY. This is just not the heady growth rate that the market had grown accustomed to during the pandemic when revenue was growing well over 100%.

Upstart stock took a dive in early July when the artificial intelligence credit marketplace released a terrible preliminary Q2 forecast. After already disappointing the market in Q1 with Q2 guidance calling for $300 million in revenue, the company blamed higher interest rates and lender instability for a much lower revised forecast figure of $228 million. Additionally, selling off loans on its balance sheet also hurt revenue as they had to be sold at a discount due to the Fed's recent interest rate hikes. Just to be sure, that $228 million figure is a 24% reduction in Q2 outlook compared to the already reduced outlook at $300 million, which was already about 10% below Wall Street's earlier projection. 

Upstart had 57 banking partners that funded the loans on its platform at the end of the first quarter. The company says it has added at least five new lenders who do not require a minimum FICO score since then, but analysts will focus on this number. Worries over default rates may have triggered some lenders to end their partnership with the platform.

With the fuller integration of Prodigy, the auto loan platform that Upstart acquired last year, beating that revenue figure should be rather easy. Upstart's number of dealership partners soared from 100 to 500 in the first quarter due to that integration and expect that figure to rise in Q2. 

Goldman's mid-July downgrade of Upstart is still in focus for most investors. Analyst Michael Ng cut Upstart from Neutral to Sell and attached a worrisome $14 price target to the AI lender. 

"Although UPST’s ~9% penetration of the U.S. personal loan market through 2021 has been impressive, we believe the recent slowdown in origination and revenue growth is evident of heightened competition and increasing funding costs for UPST partners, which reduces visibility into long-term growth and share gains beyond 2023 that historically have justified UPST’s premium valuation relative to peers," Ng wrote in a note to clients on the downgrade.

Upstart Holdings stock forecast: Poor earnings could trigger return to $26

Upstart stock has been languishing for the past three months since it reported in the first quarter. Now somewhat due to competitor SoFi (SOFI) producing revenue and interest income ahead of expectations last week, the market has begun thinking Upstart can do the same. Monday's 13% jump has pulled UPST stock above the July 20 range high, and shares are now staring at two more range highs from a month or so back at $36 and $41.20. Both of those range highs were minor, so it is hard to say if they will provide any resistance this time around.

Both the 9-day moving average recently overtaking its 21-day counterpart and the Moving Average Convergence Divergence (MACD) putting distance between itself and the signal line demonstrate a stock in rally mode. If earnings and/or guidance are poor post-market, expect UPST to drop with a fury back toward moving average support between $26 and $27. Support at $26 from mid-May's plunge may also come into play.

UPST stock

UPST daily chart

The author owns shares of UPST.

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