Startup CEO Defends Increasing Loan Balance Says AI Loan Platform Model Hasn't Changed

Jim Cramer on Tuesday, Upstart Holdings CEO David Giroud tried to play down investor concerns about increasing loan balances on financial technology companies' balance sheets at the end of the first quarter.

Shares in lending platform AI fell 56.42% on Tuesday to close at $33.61 per share, a day after it also lowered its full-year earnings guidance and adjusted its EBITDA margin. Beginners cited rising interest rates and broader economic uncertainty for a revised forecast that was lower than Wall Street's expectations. Starter loan balances were also in focus on Tuesday.

"To be clear, in the first quarter, a single-digit percentage of loans originating from our platform went into our balance sheet," Giroud said in an interview with Mad Money. "That hasn't changed in our history."

On Monday, Starter said it had $604.4 million in loans on its balance sheet as of March 31, up from $260.8 million in the fourth quarter of 2021. However, some analysts noted that the increase reflected Starter's increased credit risk, and Kramer told the jury that he was "surprised" by the figure.

"We've said that we use the loans on our balance sheet to test new products and new models, and for the most part, we are," Giroud said.

The newbie has recently grown up in the auto loan market while also working on launching a small-dollar loan product.

"This is not a change to our model," said Giroud, referring to Starter's use of its balance sheet to support research and development of new loan products. "More than 90% of our loans come from and are held by banks or come from banks and are sold forward in the institutional market. That hasn't changed."

The startup, which went public in December 2020, has surged for much of the past year, hitting a record high of $390 per share on October 15. Airlines set growth in response to a more aggressive Federal Reserve. Upstart shares were down about 91 percent from their record high at Tuesday's close.