Market Movers: Upstart’s Fall From Grace

Market Movers: Upstart’s Fall From Grace

 

Don’t worry, we can confirm that it is indeed Saturday, but what a long week that was!

At time of writing, the S&P 500 has fallen more than 4.6% since the market closed last Friday. The Dow Jones is down 3.5%, while the Nasdaq has dropped a whopping 6.4% — although that was more than 8% at one stage on Thursday.

It’s not just stocks that are tanking this week, with the crypto markets getting rinsed too. One in particular — Terra Luna — lost 98% of its value in just 24 hours, devastating thousands of investors.

It’s tough out there folks, but at times like this, it’s more important than ever to remain calm and stick to the long-term game you are playing.

As my colleague Pádraig pointed out in yesterday’s Fastball, between 1854 and 2018, there were 33 recorded major recessions in the United States. Of course, all of them eventually recovered well past previous highs.

Hang tight!

Here were the biggest movers in the MyWallSt shortlist this week:

Moving Up ⬆️

Hain Celestial (HAIN) +6.4%

Casey's (CASY) +3.4%

Bumble (BMBL) +2.1%

Etsy (ETSY) +1.7%

Brown-Forman (BF.B) +0.9%

Moving Down ⬇️

Upstart Holdings (UPST) -60.9%

Stitch Fix (SFIX) -23.1%

MercadoLibre (MELI) -22.1%

Square (SQ) -21.2%

Sea Limited (SE) -19.4%

 

The Winners

Hain Celestial (HAIN) +6.4%

What goes down must go… up!?

After falling more than 20% last week and featuring in our weekly losers list, Hain Celestial is inexplicably at the top of our winners' list this week. So what gives? Did the company update its earnings? Did it sign a blockbuster new deal?

In reality, there was no material news relating to Hain that caused this small jump in price. What most likely occurred is what is known in the investing world as a “dead cat bounce” — when a stock price recovers briefly after a prolonged decline.

In Hain’s case, company stock has been on a downward trend since November of last year, with that fall accelerating in the last week or so due to earnings and wider market pressures. The small bump Hain stock got this week could be the result of a few things — like investors feeling like it’s oversold and has reached a bottom, or perhaps traders closing out on their short positions.

For us long-term investors, however, we need to be careful not to assume that this means Hain is back on the up. As discussed last week, there is still a lot of work for management to do to steady the ship.

Bumble (BMBL) +2.1%

Though its gains this week appear marginal, it's worth including Bumble in our winners’ list due to the great earnings it reported on Wednesday evening.

For the last quarter, the company reported earnings per share of $0.13 against an expected loss of $0.03 per share, while revenue of $211.2 million came in comfortably ahead of a predicted $208.4 million.

Much of this growth was driven by a 31% year-over-year spike in paying users of the firm’s flagship Bumble app, adding 134,000 users compared to the quarter before. Overall, Bumble now has more than 3 million paying users across all of its apps.

As explained by CEO Whitney Wolfe Herd, “Bumble App drove substantial revenue growth across the US and international markets and delivered a significant sequential increase in paying users by continuing to focus on a woman-first experience built upon trust, kindness, and safety.”

 

The Losers

Upstart Holdings (UPST) -60.9%

On to our weekly losers, and in a complete inversion from Hain’s story, our best-performing stock from last week has somehow managed to be our worst-performing stock for this week — by a long shot.

Upstart reported its quarterly earnings on Monday, and the past quarter was actually pretty good. Revenue grew 156% to hit $310 million, the number of loans originating from bank partners totaled over $4.5 billion, and net income came in at $33 million.

So what was the problem?

Well, like so many other companies this earnings season, management reduced full-year guidance from $1.4 billion to $1.25 billion. Revenue for the current quarter is also expected to drop compared to last quarter, with management forecasting $295 - $305 million.

In the earnings release, CEO Dave Girouard noted how difficult the economic environment is becoming, with the Fed expected to be very aggressive with interest rates in a bid to stem rising inflation. These higher returns have had a direct impact on Upstart’s business, with the average loan pricing increasing by more than 300 basis points since October 2021, while approval rates for loan applicants are also dropping.

In short, Upstart is a company that is going to be affected more than most by wider economic pressures. The underlying investment thesis in the company is in no way broken, but a strong stomach will likely be required for the rest of the year.

JamesJames

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