Most fintech companies have suffered due to the rise in interest rates over the last year and multiple banks’ failures in recent months. Upstart Holdings, Inc. (NASDAQ: UPST) and Affirm Holdings, Inc. (NASDAQ: AFRM) are two fintech companies that recently unveiled their earnings report, with both beating estimates; however, UPST stock rallied while AFRM stock dropped. The rise in interest rates has affected both companies in different ways, but with a potential interest rate hike pause, the fintech space could have some breathing room moving forward.
UPST Stock & AFRM Stock News
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%. In a similar fashion, AFRM beat its earnings estimates as it reported a revenue of $380.9 million, beating its estimate of $369.5 million by 3.08% and an EPS of -0.69, beating its -0.851 estimate by 18.9%. However, the AFRM stock price dropped 7% following its earnings call despite the company beating its estimates.
To explain, both companies have 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 key provisions is that the bank must 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 Cross River Bank partners that might face future scrutiny. 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, accounting for 17% of all loan funding in 2022 and 57% of all Upstart loans funded by banks and retained on its balance sheets. With this in mind, UPST stock could be at long-term risk despite its recent rally.
In AFRM’s case, Concerns regarding rising interest rates and bank failures and their effects on what the company will have to pay to service its debts could have affected the stock, with its funding debt increasing from $672.5 million to $1.5 billion. During its earnings call, AFRM stated that higher credit spreads could affect its revenue by fewer transaction costs which is a metric that measures the economic value of the transaction it processes. Nevertheless, if the Fed stops raising interest rates and potentially cuts them in the future, AFRM could be set to overcome this risk.
Yet, AFRM could witness some form of recovery, despite its recent headwinds due to the growth of its key metrics. AFRM’s gross merchandise volume increased from $3.9 billion to $4.6 billion, while its revenues grew from $354.7 million to $380.9 million. Moreover, AFRM’s active consumers increased from 12.7 million to 16 million, and its active merchants increased from 207 thousand to 246 thousand. Based on this, AFRM stock could rise in the future if it works out its funding debt problem.
UPST Stock 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.
AFRM Stock Financials
In its Q3 2023 report, AFRM reported $7.5 billion in assets, including $972.4 million in cash and equivalents and $3.7 billion in loans held for investment. AFRM witnessed an increase in assets from $6.9 billion, including an increase in loans held for investment from $2.5 billion; however, its cash and equivalents decreased from $1.2 billion in Q4 2022. UPST’s liabilities grew for the nine months ended March 31, from $4.3 billion to $4.9 billion, as its funding debt increased from $672.5 million to $1.5 billion.
For the three months that ended March 31, AFRM’s revenues grew YoY from $354.7 million to $380.9 million, while its operating loss widened from $226.5 million to $310 million. Finally, AFRM’s net loss also widened from $54.6 million to $205.6 million.
Media Sentiment
@Mr_Derivatives compares UPST and AFRM, thinking UPST’s rally was an overreaction
@Cryptadamist is concerned for UPST if Cross River Bank goes under.
@simpleinvest01 is bullish on UPST’s long-term outlook.
UPST Stock 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 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 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.
AFRM Stock Technical Analysis
AFRM stock trend is neutral as it trades in a sideways channel between the support at $9.16 and the resistance at $12.31.
Looking at the indicators, AFRM is trading above the 21 MA, 50 MA, and 200 MA, which is a bullish sign, THE RSI is neutral at 59, and the MACD is bearish.
Fundamentally, AFRM stock’s most recent catalyst was its Q3 earnings. Still, it does not have any upcoming catalysts aside from the Feds possibly no longer increasing interest rates while potentially cutting them in the future.
AFRM’s stock doesn’t have a clear indication of how it’s going to shift. However, any possible changes in the current economic environment, such as a decline in interest rates, might shift the stock.
UPST Stock & AFRM Stock Forecast
With both companies surpassing their earnings report estimates, UPST’s stock price soared, while that of AFRM dropped. 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. On the other hand, AFRM’s stock price drop might have occurred due to concerns regarding rising interest rates and bank failures and their effects on what the company must pay to service its debts. Nevertheless, the company has been displaying significant growth rates despite its risks, as presented during its latest earnings call. With this in mind, UPST stock could crumble while AFRM stock might recover.
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