By Senad Karaahmetovic
Mizuho analysts initiated research coverage on Upstart (NASDAQ:UPST) with an Underperform rating and a $17 per share price target, signaling a downside potential of about 20%.
The analysts expect "more pain in coming quarters" after UPST shares fell 95% from the peak. The company's CEO Dave Girouard said earlier this year that Upstart is in a "funding-constrained environment, which is the primary cause of our revenue shortfall."
While the analysts see "ample room" for Upstart to cut costs, as well as early signs of inflicting loan returns, they remain skeptical that UPST shares could stage a recovery anytime soon.
"Our 35-year macroeconomic analysis shows that high interest rates, high inflation are associated with rising delinquencies, which can limit funding. Our scenario analysis suggests that if funding remains challenged, UPST may need to use warehouse / own-balance sheet lending to breakeven, which may not be well-received by investors," Dolev said in a client note.
Upstart's workforce tripled to about 1,500 staff in 2021 from a year-ago period, pushing opex higher compared to its peers.
"We estimate that cutting 10-20% of the workforce could yield about ~$50mn in cost savings, which could help require less reliance on balance sheet funding in order to-break even in a difficult environment," the analysts added.