Upstart (NASDAQ:UPST) had a huge 2021. Early shareholders enjoyed a mushrooming share price that skyrocketed by more than 2,000% from its initial public offering level.
Unfortunately, over the last six months, Upstart stock has been on a continued downtrend. Will Upstart stock be able to recover from this recent stock price fall?
We explore its business model, history, and factors that could serve as catalysts to spark a U-turn.
A Brief History of Upstart
Created by Dave Girouard, Anna Counselman, and Paul Gu in April 2012, Upstart Holdings, Inc. is a consumer lending company headquartered in San Mateo, California.
Essentially, the company is an AI lending platform that partners with banks and credit unions that provide individuals with personal loans. Upstart uses non-traditional variables to evaluate creditworthiness, including taking into consideration a borrower’s education and employment.
Factors that differentiate Upstart include:
- Upstart does not require credit history for loan approval.
- There are no prepayment penalties through Upstart.
- Borrowers can get a rate check without a hard credit inquiry.
- Funds are often available within one to two business days.
- Upstart offers borrowers flexible payment options.
The company went public in December 2020 and began trading for an IPO price of around $20 per share on the NASDAQ. Within a few months of becoming a publicly-traded stock, UPST had soared to around $100 per share.
The stock hit an all-time high in October 2021, trading at just over $400 per share. However, UPST has been on a steady downtrend since hitting this all-time trading high.
Most recently, UPST stock had a market cap of $7 billion. The stock’s 52-week low is $75.15, and its 52-week high is $401.49.
So, while the stock is still trading four times above its IPO price, it’s clear that UPST has been on a sharp downtrend over the last six months. Why?
Why Is Upstart Stock Falling?
The last 12 months have not been kind to high-growth tech companies. It’s important to understand the key factors that have led to this downfall and how these factors could jeopardize the company moving forward.
The following key factors put Upstart at an elevated risk as the stock works to make a rebound.
Huge Concentration Risks: Dependency on 2 Banking Partners
One key factor that may hurt Upstart moving forward is that the company has enormous concentration risks.
What investors need to understand is that Upstart uses data analytics to match borrowers to lenders. This means that through the Upstart platform, an individual can apply for a loan that Upstart passed on to its banking partners, who approve the loan almost instantaneously.
This model has been working well for Upstart so far. However, the company has been dependent on two specific banks thus far.
83% of Upstart’s 2021 revenue was garnered through two banks. This means that Upstart has a heavy dependence on these two banking partners. Hypothetically, either one of these banks could pull the rug out from Upstart at any time, refusing to do business any longer.
Of course, if one of Upstart’s main banking partners decides not to do business with the platform, it would cause a massive disruption to Upstart’s business model. Therefore, Upstart’s huge concentration risk could cause trouble for Upstart and its shareholders further on down the road.
Yet To Face Challenging Financial or Economic Situations
Another key factor that may hurt Upstart in the future is that the company has yet to really face any challenging financial or economic situation. The company is quite young and has generally only had to operate in low-risk market conditions thus far. Therefore, investors can not be certain that Upstart’s business model will be able to stand the test of a rising interest rate or recessionary environment.
On a more optimistic note, Upstart has been able to scale its business successfully over the last ten years. The company has experienced rapid expansion over the last few years. In 2019, Upstart completed 215,000 loan transactions. In 2021, this number exploded to 1.3 million loans.
So while the company hasn’t proven it can withstand a recessionary environment or rising interest rates, Upstart has proven that its business loan model is profitable and can be successfully scaled in the right environments. A few more years in the game, and Upstart should be able to demonstrate true staying power.
Will Upstart Stock Recover?
While certain factors could lead to UPST continuing on a downtrend, company executives are hopeful that Upstart will be able to make a full recovery over the next year. During Upstart’s Q4 2021 Earnings Call, the CEO of Upstart, Dave Girouard, had some positive messages for shareholders.
Girouard addressed Upstart’s core mission as a company, saying, “…we’re in a multi-decade mission to put affordable credit within reach of every American. The price of credit is the price of opportunity and the price of mobility. And we want to ensure that opportunity and mobility are available to all Americans, particularly for those whom the financial system has failed in the past.”
From a financial standpoint, Girouard stated, “2021… was a remarkable year for Upstart. We grew revenue from $233 million in 2020 to $849 million in 2021 while generating a net income of $137 million. And with the fourth-quarter surge, we’re now at more than $1 billion in revenue on an annualized basis. 2021 will be remembered as the year AI lending came to the forefront, kicking off the most impactful transformation of credit in decades.”
Looking to the future, Girouard shared that Upstart plans to make huge expansions to services in 2022 and the following years.
He shared the message, “Right at the top of the list for 2022 was achieving meaningful scale with auto lending on our platform. We believe in our core that AI lending isn’t a one-category phenomenon, but will eventually transform virtually all flavors of credit.”
Ultimately, Girouard reiterated to shareholders that Upstart is on a fast growth trajectory. Revenues are forecast to double over the next 5 years and a valuation analysis shows fair value sits 41% higher at $120.07 per share.
Is Upstart Stock a Buy, Sell, or Hold?
All things considered, Upstart stock is looking like a good buy for investors right now. The stock is currently trading near its 52-week low, making it available to investors at a bargain price right now. In addition, Upstart is one of the fintech companies currently disrupting the traditional lending system.
The company appeals to the younger generation of borrowers, and Upstart will likely be able to tap into this demographic for the foreseeable future. Ultimately, adding some UPST stock to your investment portfolio at these bargain prices may prove to be a wise investment decision over the next few years.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.