<News alert> 4Q23 revenue beat, while tough lending landscape suggests a longer road to recovery
- Upstart reported revenue of $140m, beating expectations of $135m
- 1Q24 guidance missed market consensus, tough lending landscape suggests longer road to recovery
- While efforts to improve efficiency started to payoff
Upstart reported revenue of $140m, beating expectations of $135m. Revenue fell 4% y-o-y to $140m in 4Q23 or 39% y-o-y to $514m in FY23 amid a challenging lending environment with high interest rates. Transaction volume decreased by 19% y-o-y to $1.3b across Upstart’s platform in 4Q23, while conversion rate improved to 11.6%, indicating rising automation and lower upfunnel costs. Upstart reported a third consecutive quarter of positive adjusted EBITDA of $0.6m, 4Q adjusted loss of 5 cents a share, largely in line with expectations.
1Q24 guidance missed market consensus, tough lending landscape suggests a longer road to recovery. Upstart expects $125m in revenue in 1Q24F, lower than consensus of $141m. Despite promising economic indicators regarding inflations and employment, Upstart is becoming more conservative on its loan pricing, mainly due to historically low saving rates and rising delinquencies spilling to primary and more affluent segments of the borrower base. Given lingering credit risk and seasonal softness in 1Q, Upstart guided an adjusted EBITDA of -$25m in 1Q24, compared to a +619m in this quarter.
Efforts to improve efficiency have started to payoff. The launch of new products and increased approval rates indicate the company’s strategy for improving loan model calibration has started to payoff. In 4Q23, 89% of loans have been instantly approved and fully automated, and 92% of instantly approved borrowers fund their loans, over 3x the conversion rate of non-automated loans. We believe that the improved efficiency and the committed capital arrangement will improve Upstart’s competitive differentiations, especially when the macro economy returns to a normalized scenario. Maintain HOLD with TP of US$24.