The online consumer lender Upstart Holdings reported another large drop in quarterly revenues after pulling back on lending amid what its CEO called a "very challenging economic environment."
Revenues at the San Mateo, California, company fell to $157 million during the third quarter, down sharply from $228 million three months earlier, because the company made fewer loans.
Upstart, which recently
CEO Dave Girouard told analysts on Tuesday that the third-quarter results "were certainly not what we wanted them to be." But he added that the decline in loan volumes during rockier economic times is "a feature of our platform, not a bug."
"As unhappy as we are with the numbers, the system is working as intended," Girouard said on the company's third-quarter earnings call.
Upstart, which uses artificial intelligence to lend to consumers with lower credit scores, works with banks to make the loans or sells them to other investors. Earlier this year, Upstart was forced to make fewer loans because of lower demand from loan buyers, and the company
Those funding pressures appear to be easing, even as Girouard noted that credit markets remain "extremely cautious." Upstart once again made fewer loans during the third quarter, but the key reason was no longer a lack of demand from loan buyers.
Rather, the company is now charging much higher interest rates to borrowers in light of the riskier economic environment and the higher yields that its buyers are demanding. And with rates elevated, fewer consumers are borrowing from Upstart.
"Our platform is fairly stable right now and loan supply and demand are roughly in balance," Girouard said in an email.
Upstart is reducing its lending to some riskier customers, approving about 40% fewer applicants than it would have a year ago. It also is assuming a higher risk of loan losses when pricing its loans, which has resulted in the company charging borrowers about 800 basis points more than would have been the case a year ago.
Given the high rates the company is charging, one analyst asked Upstart executives when "investor demand can come back." Sanjay Datta, the company's chief financial officer, said that's the "million-dollar question," and the answer will depend partly on how the broader economy performs.
"We've signaled confidence in where we are now and where we're pricing loans now, but obviously, the world needs to play out a little bit so we can demonstrate that," Datta said.
Upstart also said it added 17 banks and credit unions as partners during the third quarter, and it now has 83 lenders on its platform.
"While these lenders are starting off cautiously, it's encouraging that we're planting seeds for funding capacity in our future," Girouard said.
Upstart said last quarter that it was
After being asked for an update on Tuesday, Datta told analysts that Upstart is having "a number of encouraging conversations" but that the shift will not "happen overnight."
That's partly because Upstart wants to make those decisions based on the long-term future of the company rather than "out of a sense of urgency," Datta said.
"I think those partnerships are available, but they may take some time to put into place because they're important and large and strategic," Datta said.
