Consumer Loan Provider Upstart Holdings announced its first quarter results after the bell yesterday. In the wake of that particular set of data, the company’s stock fell 53% in early trading today.
What caused such a catastrophic crash? The company lowered its revenue growth forecast for the year and said rising borrowing rates appear to be hurting demand for its product. Slower growth this year, potentially declining net income and a market in which interest rates are expected to rise further have made Upstart an invaluable favorite in the eyes of investors.
Upstart’s poor guidance isn’t just hurting its own stocks. The value of Affirm’s shares also fell after Upstart’s results came out. After falling 17.5% during regular hours yesterday, Affirm shares hit a 52-week low of $18.39 in early morning trading today. The company also suffered a downgrade from analysts this morning.
Shares of Affirm rebounded to a more modest 5% drop at the start of trading today, but it’s clear that investors are linking Upstart’s results to Affirm’s value, a reasonable move given that both offer unsecured consumer credit even if their go-to-market movement is different.
The shocking fall in value of the two companies is only part of the story. There are countless startups in the BNPL market, which means that much of the fintech was just heavily repriced. Startups pursuing a BNPL or similar consumer credit product now have a much lower present value and their path to exit is much steeper.
Market reaction aside, Upstart actually had a solid Q1. Let’s talk about the rest of the year, and how concerned we should be about BNPL startups looking ahead.