2023-05-10 11:56:43 ET
Upstart Holdings ( NASDAQ: UPST ) stock soared 30% in Wednesday midday trading after the AI-powered lending platform posted better-than-expected Q1 earnings, issued strong Q2 guidance, and secured more than $2B in funding agreements.
Those agreements, "as well as others in the pipeline, will provide us with a stronger and more resilient capital supply over the coming quarters," Chief Financial Officer Sanjay Datta said during the company's earnings call .
The funding development provides some relief for Upstart ( UPST ). After Q3 earnings, the stock had dropped when management said the company would leverage its own balance sheet as a bridge until it could arrange committed funding.
The new funding should "start to lift orginations," though there could be some impacts on margins from the new financial terms, wrote Barclays analysts Ramsey El-Assal and John Coffey in a note dated late Tuesday.
In the call, Datta said the funding agreements will allow Upstart ( UPST ) to share some "modest preferental economics." That could include return premiums, a take-rate co-investment, or modest discounting and risk-sharing, he said.
Due to the short interest in Upstart ( UPST ), the analysts expected the better-than-expected Q1 results to drive up shares. (Short interest was recently ~37%.)
El-Assal and Coffey also pointed out that UPST's slight revenue beat ($103M vs. consensus of $100M) was helped by pricing power. Q1's take rate of 11.7% increased 160 basis points from Q4 2022.
The company's contribution margin rose to a record level of 58% in Q1 and is expected to rise to 60% in Q2, management said.
In addition, cost-cutting drove Upstart's ( UPST ) Q1 beat on EBITDA margin, turning in -30% margin vs. Street consensus of -46%, the Barclay analysts said.
In the earnings call, management pointed to a 30% reduction in headcount. It has also identified ways to reduce its technical infrastructure costs by as much as $10M a year and sublet some unneeded office space.
More on Upstart:
- An Update on the Upstart Story: Strong Buy
- A Turnaround Quarter as the Worst Is Likely Over
- Why It's Soaring
- Q1 Earnings Call Presentation
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Upstart Holdings stock surges after Q1 beat, new funding, strong guidance