By Michael Elkins
Loop Capital downgraded Upstart Holdings (NASDAQ:) to a Hold rating (From Buy) after the company’s shares reached Loop Capital’s reiterated $24.00 price target.
The shares of UPST have rallied 80% YTD, and analysts suspect a potential near-term pause in and UPST’s current estimated short interest of 38% played a role in YTD gains.
They wrote in a note, “We view the AI underwriting model as the future of lending, but the platform model of matching consumers to lenders on the other side of the UPST platform has simply not worked in this rising loss rate and interest rate environment. Investors fled the platform as quickly as they joined it in 2020 and 2021 when they enjoyed outsized gains, fueled by a stimulus boosted consumer credit performance period that no one should expect again, ever. With the large move higher in rates, investors have many new alternatives for yield in the credit markets, making a potential bounce back in growth for the platform lending model a low probability event in 2023.”
Earlier this week the AI lending platform announced that they would be cutting their headcount by 20%, or 365 employees. The reduction follows a 7% reduction announced earlier this year. Once fully implemented, the savings are estimated to be around $57M.
The company is also pulling back from SMB loan efforts until the economic outlook is more certain. Analysts view the strong contribution from auto and other verticals to be less likely in 2023, given higher interest rates, loss rates, and investor risk premium.
Shares of UPST are down 2.05% in pre-market trading on Friday.