Shares of Upstart Holdings Inc. have rocketed in recent months but were falling back to earth Wednesday after the company, which uses artificial intelligence to inform lending decisions, posted its latest results.

While the headline numbers topped expectations, analysts saw a few reasons for the slide in shares, which are off more than 18% in Wednesday afternoon trading and on track for their largest single-day percentage drop since March 23, when the stock lost 28.1%.

Upstart’s
UPST,
-18.87%

non-core revenue line “unexpectedly drove much of the outperformance” in the third quarter, noted Barclays analyst Ramsey El-Assal. He highlighted greater interest income and fair value adjustments than he had originally projected, and he suspected that “investors likely view [those items] as lower quality than Upstart’s core fee revenue.”

El-Assal walked through the two factors behind Upstart’s strong non-core performance: Upstart saw higher realized gains due to loan sales into the asset-backed securities market, and it also recognized an increase in interest income because it’s holding auto loans on its balance sheet.

He noted that Upstart expects the first dynamic to wane in the fourth quarter, while the second dynamic “is also temporary, though it will take some time for the company to gain enough scale to roll out a commercial program for their auto loans.”

El-Assal remains bullish on Upstart, arguing that the fourth-quarter outlook is more reflective of “underlying core strength than investors currently appreciate.” He has an overweight rating and $345 price target on the stock.

Bank of America’s Nat Schindler also called out that Upstart’s fee revenue was only “in-line” with the consensus view. Though the company upped its full-year forecast by about $50 million, investors may have been looking for a bigger bump, in his view, given that the company raised its full-year forecast by $150 million after its second-quarter report.

“While we continue to believe in the longer term upside potential and strong growth outlook of Upstart, we think near term upside has been priced in given the current valuation,” Schindler wrote, while maintaining an underperform rating and lowering his price objective to $255 from $300. He had double-downgraded the stock back in October.

Piper Sandler’s Arvind Ramnani attributed the selloff mainly to “elevated investor expectations and lack of quantification of its auto opportunity.” Still, he views the stock’s Wednesday decline as a “buying opportunity” since Upstart’s “disruptive offering is improving outcomes for both borrowers and lenders.”

Ramnani has an overweight rating and $300 price target on the stock.

Jefferies analyst John Hecht took a similar view of the outlook. “Based on larger increases in guidance and operating leverage in recent quarters, we believe expectations for the remainder of the year were for a greater beat and raise,” he wrote, while keeping his hold rating on the shares but lowering his price target to $300 from $330.

Hecht also said that there was “some good on the quarter, but too many takes for a stock with this much anticipation.”

Even with Wednesday’s selloff, the stock is up more than 500% so far in 2021, compared with a 24% rise for the S&P 500
SPX,
-0.61%

over the same period. The company went public in late December.

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