Upstart reports lower than expected revenue forecast, CEO confident AI-based lending model will work

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 offered preliminary second quarter results a month ago that fell short of expectations, the key issue heading into the company's official earnings report was its outlook.

Analysts were expecting to see $170 million in revenue in the third quarter, while Expectations for $249 million were forecast by Upstart, which uses artificial intelligence to inform lending decisions.

In the year-earlier quarter, the company posted a net loss of $29.9 million, or 36 cents a share, compared to the prior quarter's net income of $37.3 million, or 39 cents a share. Upstart posted per-share earnings of 1 cent, whereas it had earned earnings per share of 62 cents a year ago.

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

The total revenue of the startup went up to $228 million from $194 million, while the FactSet consensus was for $242 million. The company generated $258 million in fee revenue, but the revenue total was affected by $30 million in adjustments related to interest income and fair value.

When executives gave a preliminary update on the business in early July, they said there was $228 million in overall revenue and $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. We are taking the necessary actions to build a more resilient and committed funding model over time. In a blog post he stated that the company s outlook calls for a 25% drop in third-quarter revenue relative to second-quarter revenue, which reflects funding constraints. It is important to ask whether our AI-based credit model continues to work as designed, as a decline in revenue is something that is obviously disappointing, and that's why it's so important to ask if our AI-based credit model continues to work as designed, Girouard said. We are confident that it will. The company said 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, while the S&P 500 SPX has gone up 0.4%.