Upstart Holdings Q2 Earnings: the Surprising Outperformance

Dan Nicholson

Upstart Holdings, Inc. (UPST) stunned market participants by posting earnings of $0.06 per share, sharply contrasting the Zacks Consensus Estimate of a $0.06 loss. When compared with last year's earnings of $0.01 per share, this result is even more impressive. A clear pattern emerges when looking at the past four quarters: Upstart has beaten consensus EPS estimates three times.

In terms of revenue, the company reported figures of $135.77 million, edging past the Zacks Consensus Estimate by 1.39%. These numbers mark a decline from last year's $228.16 million but continue a trend.

The Broader Picture: Stock Movements and Earnings Calls

The sustainability of the stock's immediate trajectory hinges significantly on the management's commentary during the earnings call. Year-to-date, Upstart's shares have burgeoned by an astounding 293.1%, overshadowing the S&P 500's gain of 17.7%.

Investors are now understandably contemplating the future trajectory of Upstart's stock. Empirical studies indicate a robust relationship between near-term stock movements and earnings estimate trends. The Zacks Rank, a tried-and-tested tool, emphasizes the power of earnings estimate revisions. Prior to this earnings release, Upstart's estimate revisions were mixed, landing the stock a Zacks Rank #3 (Hold), indicating an expectation that the shares would align with market performance.

Monitoring how estimates for upcoming quarters will provide insights as analysts and investors scramble to adjust their projections and strategies.

External Factors: Industry Outlook and Peer Performance

The broader industry outlook can wield considerable influence over a stock's performance. Currently, the Computers - IT Services industry, to which Upstart belongs, ranks in the bottom 37% of over 250 Zacks industries. Research by Zacks underscores that industries in the top 50% consistently outpace their counterparts in the bottom half.

Another player in the same industry, Computer Task Group (CTG), is yet to unveil its results for the same quarter. These results, slated for an August 9 release, will be closely watched given the industry's overall performance and trends.

Mixed Market Reactions and Forward Guidance

Despite Upstart's stronger than expected performance, its shares plummeted 19% in pre-open trading. This decline appears to echo sentiments from Citi analysts, who maintain a Sell rating and suggest potential headwinds like higher interest rates, cumulative inflation, and the return of student loan payments that could further challenge non-prime lending fundamentals.

While BTIG analysts acknowledged the revenue miss as a significant takeaway, they believe Upstart navigated past the most challenging period it faced in 2022.

Upstart's CEO, Dave Girouard, emphasized the firm's record contribution margin and positive cash flow, highlighting the firm's resilience. However, the forward guidance indicates challenges, with projections for Q3 2023 revenue at $140 million and an adjusted net loss of $2 million. This guidance significantly trails analyst expectations, adding to investor concerns.

Final Thoughts

Amid a tumultuous economic environment, Upstart's results and forward guidance paint a mixed picture. While the company has displayed remarkable resilience and adaptability, external factors and broader market trends will heavily influence its near-future trajectory. For investors, patience will be a virtue as they watch Upstart's journey unfold.


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The Motley Fool

Dan Nicholson is the author of “Rigging the Game: How to Achieve Financial Certainty, Navigate Risk and Make Money on Your Own Terms,” deemed a best-seller by USA Today and The Wall Street Journal. In addition to founding the award-winning accounting and financial consulting firm Nth Degree CPAs, Dan has created and run multiple small businesses, including Certainty U and the Certified Certainty Advisor program.

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