To The Moon

$Upstart Holdings, Inc.(UPST)$ Was Its Run An Overreaction?

Most fintech companies have been suffering as of late due to the rise in interest rates over the last year, coupled with the failure of multiple banks during recent months. Upstart Holdings, Inc. (NASDAQ: UPST) is a fintech that recently unveiled its earnings report and rallied by as much as 40%. The rise in interest rates has affected fintech companies in different ways, but with a potential interest rate hike pause, the fintech space could have some breathing room moving forward.

UPST Fundamentals

After beating its Q1 2023 estimates, UPST stock price soared 40% pre-market. UPST reported $102.9 million in revenues beating its estimate of $99.7 million by 3.21% and an EPS of -0.47 beating its estimate of -0.82 by 43.11%.

UPST has been affected by the looming recession in the US and the continuous rise in interest rates by the Fed throughout 2022, which has affected the number of people getting loans. As a result, UPST revenues declined from $310.1 million to $102.9 million due to the low demand for loans. However, the Fed might have hinted that it won’t raise interest rates any further, which indicates that the decline in UPST’s revenues could slow down moving forward, yet it still might not recover as the current interest rates are still high.

Nevertheless, UPST could still face a near-term risk due to its dependency on Cross River Bank which recently entered a consent order with the FDIC to resolve charges that the bank engaged in unsafe practices related to its fair lending compliance. One of the main key provisions is that the bank is required to develop fair lending internal controls that must be reviewed periodically on a risk basis but not less than annually and adjusted appropriately.

This consent order could be considered a warning to partners of Cross River Bank that might face scrutiny in the future. UPST could be a prime candidate for this, as Cross River Bank formed 51% of the loans processed through UPST’s platform while receiving fees from the bank that accounted for 45% of UPST’s total revenues in 2022. Furthermore, Cross River Bank is the biggest buyer of UPST’s loans and accounted for 17% of all loan funding in 2022 and 57% of all Upstart loans that are funded by banks and retained on its balance sheets. With this in mind, UPST stock could be at risk long term despite its recent rally.

UPST Financials

In its Q1 2023 report, UPST reported $1.8 billion in assets including $386.9 million in cash and $982.2 million in loans. UPST witnessed a decline in its assets from $1.9 billion including a decline in its cash from $422 million and a decline in its loans from $1 billion in Q4 2022. UPST’s liabilities shrank QoQ from $1.2 billion to $1.1 billion, however, its borrowings increased from $986.3 million to $1 billion.

For the three months ended March 31, UPST’s revenues declined YoY from $102.9 million to $310 million and its operating income dropped from $34.8 million to a loss of $131.8 million. Finally, UPST’s net income also dropped from $32.6 million to a net loss of $129.2 million.

Technical Analysis

UPST stock trend was bearish as it was trading in a downward channel, however, it recently broke out of the channel forming a large gap.

Looking at the indicators, UPST is currently trading above the 21 MA, 50 MA, and 200 MA which is a bullish sign. The RSI is overbought at 81 and the MACD is bullish but is curling bearishly.

Fundamentally, UPST’s most recent catalyst was its Q1 earnings. UPST doesn’t have any upcoming catalyst, however, the Cross River Bank consent order might affect UPST in the future if Cross River Bank goes under. Additionally, The Feds possibly no longer increasing interest rates while potentially cutting them in the future could bode well for the company in the future.

UPST stock price is expected to drop anticipating the RSI to cool down, while also filling the gap it recently formed. A possible entry point would be at the current price as the stock is trading near the $19.26 resistance taking profits along the way on testing the $17.64 support, the $15.68 support, and the $14.06 support.

UPST Forecast

Despite UPST’s stock soaring, the company may witness a near-term risk due to the consent order on Cross River Bank which is UPST’s biggest loan provider forming more than half the loans processed through the company’s platform. For this reason, UPST may crumble moving forward.

Source: tradingview