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Upstart outlook comes up short, but CEO says he’s ‘confident’ in value of AI lending

Upstart Holdings Inc. delivered a lower-than-expected revenue forecast for the current quarter, but its chief executive expressed confidence in the performance and value of artificial-intelligence-driven lending.

Since Upstart
UPST,
+9.02%

offered preliminary second-quarter results a month ago that fell shy of expectations, the key issue headed into the company’s official earnings report was its outlook.

Executives at Upstart, which uses artificial intelligence to inform lending decisions, expect $170 million in revenue for the third quarter, whereas analysts were anticipating $249 million.

For the second quarter, the company posted a net loss of $29.9 million, or 36 cents a share, whereas it recorded net income of $37.3 million, or 39 cents a share, in the year-earlier quarter. On an adjusted basis, Upstart posted per-share earnings of 1 cent, whereas it had logged adjusted earnings per share of 62 cents a year earlier.

Analysts tracked by FactSet had been projecting adjusted EPS of 3 cents.

Upstart’s total revenue rose to $228 million from $194 million, while the FactSet consensus was for $242 million. The company generated $258 million in fee revenue but saw the revenue total impacted by about $30 million in adjustments related to interest income and fair value.

When executives gave a preliminary update on the business in early July, they called for $228 million in overall revenue and a $27 million to $31 million net loss, both of which were significantly weaker than the company’s prior forecast.

“This quarter’s results are disappointing and reflect a difficult macroeconomic environment that led to funding constraints in our marketplace,” Chief Executive Dave Girouard said in a release Monday. “In response we’re taking the necessary actions to build a more resilient and committed funding model over time.”

He added in a blog post that the company’s outlook calls for a 25% drop in third-quarter revenue relative to second-quarter revenue, which reflects funding constraints. “A decline in revenue is obviously disappointing, and it’s natural to ask whether our AI-based credit model continues to work as designed,” Girouard said. “We’re confident it does.”

The company disclosed that it bought back 3.5 million shares, totaling about $125 million, in the second quarter.

The stock has lost 62% over the past three months, as the S&P 500
SPX,
-0.12%

has inched up 0.4%.

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