Upstart stock price forecast: Avoid as UPST woes mount

Upstart (NASDAQ: UPST) stock price was among the worst-performing companies in the premarket session on Wednesday. The company, which describes itself as the leading AI lending marketplace, crashed by over 22% after publishing weak results. It dropped to a low of $22.81, down from the closing price of $29.40.

Upstart growth concerns

Upstart is a fintech company that connects users to hundreds of financial service providers like banks and credit unions. Users in its ecosystem can borrow money with a click of a button. 

Upstart published weak financial results that revealed its business was not doing well. Its total revenue in the third quarter plunged by 14.4% to $134.5 million as interest rates remained at an elevated level. Its revenue was much weaker than its previous guidance of $150 million. 

Upstart also saw weak net interest income (NII), which dropped to minus $12 million. This figure was mostly because of a one-time charge for loans that entered bankruptcy. The volume of loans in its ecosystem rose by just 5% to 114k.

Worse, the company delivered a weak guidance for the current quarter. It expects its revenue will be $135 million. Its total revenue will be $150 million while its net interest income will be minus $15 million. 

The biggest challenge for Upstart is that interest rates are expected to remain higher for longer. In its decision last week, the Fed decided to leave rates unchanged between 5.25% and 5.50%. 

In a statement on Tuesday, Fed’s Neel Kashkari warned that the bank could still hike rates if inflation remained high. Higher rates hurt Upstart because of the potential delinquencies and weak demand for loans. Besides, people who were used to a near zero rate are now being charged over 8%.

Therefore, it is still quite risky to recommend investing in Upstart stock. As an analyst with a long-term view, I recommend investing in quality profitable companies that have loads of cash in their balance sheet. Upstart is not one of them and is also exposed modestly to external factors outside its control.

Upstart stock price forecast

UPST chart by TradingView

The daily chart shows that the UPST share price has been in a freefall in the past few months. It peaked at $72.62, the highest point on August 1st. The shares have now plunged below the important support level at $22.60, the lowest level on October 26th.

They have also moved below the 50-day and 25-day moving averages. Therefore, the outlook for the stock is quite bearish, with the next important level to watch being at $12, the lowest levels in May and March this year and December last year. Such a drop will see it fall by another 50%.