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UPST

Upstart Holdings NasdaqGS:UPST Stock Report

Last Price

US$20.79

Market Cap

US$1.7b

7D

-3.3%

1Y

-93.0%

Updated

30 Sep, 2022

Data

Company Financials +
UPST fundamental analysis
Snowflake Score
Valuation2/6
Future Growth4/6
Past Performance3/6
Financial Health4/6
Dividends0/6

UPST Stock Overview

Upstart Holdings, Inc., together with its subsidiaries, operates a cloud-based artificial intelligence (AI) lending platform in the United States.

Upstart Holdings, Inc. Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Upstart Holdings
Historical stock prices
Current Share PriceUS$20.79
52 Week HighUS$401.49
52 Week LowUS$20.22
Beta0
1 Month Change-19.73%
3 Month Change-36.65%
1 Year Change-93.04%
3 Year Changen/a
5 Year Changen/a
Change since IPO-29.45%

Recent News & Updates

Sep 29

Upstart Stock Is Down Over 80% This Year; Is It A Buying Opportunity?

Summary UPST's Q3 2022 management guidance came in below expectations, and it is necessary to highlight that the company also withdrew its full-year guidance. Upstart's shares fell by more than -80% year-to-date, as its growth has been challenged by funding issues in the current market environment. In the long run, UPST's revenue should be less volatile although this might come at the cost of weaker profitability, as Upstart tweaks its funding approach. Upstart appears to be fairly valued, taking into account both historical and peer valuations. Upstart's stock is rated as a Hold; UPST isn't a Buy despite dropping significantly so far in 2022. Elevator Pitch I have a Hold investment rating for Upstart Holdings, Inc.'s (UPST) stock. I previously touched on UPST's share price weakness and financial outlook in my earlier March 2, 2022 article. My latest update shines the spotlight on the further drop in Upstart's stock price, and the change in the company's prospects in view of its new funding approach. Upstart's stock is down by over -80% this year as a result of funding issues that have limited its growth. But I don't view UPST as a buying opportunity, as I see its shares as fairly valued after reviewing its peer and historical valuations and considering the impact of Upstart's shift to committed capital funding sources. UPST Stock Key Metrics UPST's key metrics revealed as part of the company's Q3 2022 management guidance were poor. According to the company's Q2 2022 earnings press release, Upstart had guided for a top line of $170 million and breakeven non-GAAP adjusted EBITDA for the third quarter of 2022. Prior to UPST's second-quarter financial results announcement, Wall Street analysts were expecting Upstart to achieve relatively higher revenue and non-GAAP EBITDA of $262 million and $29 million, respectively as per S&P Capital IQ data. The company's Q3 2022 guidance translates into an expected -26% YoY and a -25% QoQ contraction in its top line. Also, Upstart was profitable at the operating income level in prior quarters, boasting adjusted EBITDA of $29 million and $5.5 million for Q3 2021 and Q2 2022, respectively. In contrast, Upstart's management guidance points to the company delivering a non-GAAP EBITDA of $0 million in Q3 2022. It is also worth noting that Upstart no longer offers guidance for full-year fiscal 2022. At the company's most recent Q2 2022 earnings briefing, UPST mentioned that "it is prudent to limit our guidance for now to the coming quarter and withdraw prior full year guidance" taking into account "the volatility of the current funding environment and the difficulty in forecasting, the timing of changing macro sentiment." Separately, the sell-side analysts have become increasingly bearish on Upstart's near-term prospects. 12 of the 13 Wall Street analysts covering UPST's shares lowered their respective bottom line financial projections for the company in the last three months. The weak third-quarter guidance that Upstart provided has been factored into the company's stock price performance as discussed in the subsequent section. Why Has Upstart Stock Dropped Over 80% This Year? Upstart's stock price is down by 85% in 2022 thus far, as compared to a -23% pullback for the S&P 500 in the same time frame. It has become increasingly difficult and costly for Upstart to secure funding for its loans against the backdrop of rising rates and a weak economy. This has led UPST to cut its revenue guidance for Q3 2022, and it doesn't come as a surprise that Upstart's shares have dropped in tandem with much lower growth expectations for the company. UPST had highlighted earlier at its most recent investor conference, Piper Sandler's Global Growth Frontiers Conference on September 14, 2022, that "the bigger constraint on our business right now is the sort of anxiety of the funding markets and their willingness to fund loans." In the next section, I focus on Upstart's plans to tackle its funding issues and how that will affect its prospects for the long run. What Is UPST Stock's Long-Term Outlook? UPST's long-term outlook will be influenced by the company's efforts to make changes to its funding approach. In its second-quarter financial results media release, Upstart disclosed that it is "taking the necessary actions to build a more resilient and committed funding model over time." Upstart noted at the company's Q2 2022 investor call that the company's plans are to have "a significant amount of committed capital on board from partners who will invest consistently through cycles." At Goldman Sachs' (GS) Communacopia + Technology Conference on September 13, 2022, UPST highlighted that these new committed capital partners could be investors like "sovereign wealth funds, insurance companies." More significantly, Upstart cautioned at the GS conference that there will be a "trade-off" with expectations that "committed capital will come at a somewhat higher cost." It is reasonable to expect that Upstart will be a company boasting more stable revenue growth at the expense of lower profit margins or weaker profitability in the long term. Due to the lack of committed capital as part of its current funding approach, UPST's top line in the short term is expected to be volatile. Based on the market's consensus financial estimates obtained from S&P Capital IQ, Upstart's revenue growth is forecasted to slow from +42% for fiscal 2020 and +264% for fiscal 2021 to +6% and +7% in FY 2022 and FY 2023, respectively. In the long run, when UPST pivots successfully to a new funding model that has a higher proportion of committed capital, one shouldn't see such wild swings in top line expansion from year to year. With regards to profitability, UPST has already acknowledged at the recent GS conference that it will have to pay a higher price to secure the relatively more predictable and reliable funding sources. This translates into expectations of a decline in margins and reduced profitability for Upstart going forward, as the company optimizes its funding model in time to come. Is Upstart Stock Undervalued? Upstart's stock isn't undervalued, notwithstanding the -85% fall in the company's share price in 2022 year-to-date. UPST's valuations have derated over time, but the stock is still valued at a premium to its peers.

Sep 19

Upstart Has Its Moment

Summary Upstart stock previously crashed 70% when the company used its balance sheet to fund loans. After subsequently stating that it would no longer do that at an investor conference, the company has changed its mind once again - and crashing again. Growth will finally turn negative though the company has a lean cost structure. At under 3x sales, the valuation is not demanding, but valuation is not the problem. Upstart (UPST) delivered a disappointing and confusing second quarter earnings report. The company had already pre-announced second quarter results, but in addition to issuing disappointing guidance, the company also flip-flopped yet again on whether to use its balance sheet to fund loan originations. While it is not necessarily a surprise for the business to be experiencing volatility amidst a rapidly rising interest rate environment, the pace of unwinding took many investors by surprise, nonetheless. The stock is still very cheap here, and if the company can return to even some semblance of stable growth, then this stock could still provide strong forward returns. UPST Stock Price After peaking just above $400 per share in late 2021 right before the tech bubble burst, UPST has since fallen over 90%. Data by YCharts I last covered UPST in May, where I discussed the attractiveness of the stock after the second quarter earnings crash. That crash was largely attributed due to the company straying from the tech model in holding some loans on its balance sheet. The company has since stated intentions to avoid doing that in the future, but in this latest earnings release once again has become comfortable using its balance sheet to fund loan originations. What is Upstart? In short, UPST uses its artificial intelligence algorithm to determine creditworthiness in a way that it believes is superior to that of FICO. We can see below that UPST's models have done a superior job relative to FICO based on comparing the default rates for their respective grades. 2022 Q2 Supplement The way to interpret the above chart is to focus on how UPST's "A+ and B" ratings have generated very low default rates while its "E-" rating has been very comparable to FICO's "629 or Below" rating. UPST monetizes their algorithm by helping originate loans, typically earning a fee on each loan processed. Prospective investors (those buying the loans) are presented with projected return profiles for the loans. We can see below that UPST has typically materially outperformed the target gross return. 2022 Q2 Supplement Recent quarters have seen the baseline expected return dip below the initial target gross return rates, which is understandable on account of the rapidly rising interest rate environment. UPST Stock Key Metrics The latest quarter saw revenues grow by only 18% year over year, with net income swinging slightly negative. 2022 Q2 Presentation UPST was able to offset weakness in loan volumes with pricing power, as contribution margins rose to 47%. UPST continued to increase the number of bank and credit union partners on its platform. 2022 Q2 Presentation Most of its loans continue to be originated by two "power customers," who accounted for 78% of revenues in the quarter. UPST also continued to increase the number of dealerships using its auto lending platform. 2022 Q2 Presentation Auto lending remains a small part of its overall business as seen below. We can also see below the dramatic 31.5% decline in number of loans processed in its core personal unsecured product. 2022 Q2 Presentation In a surprising detail, Upstart repurchased 3.5 million shares totaling approximately $125 million. The company ended the quarter with $914.4 million of cash on its balance sheet. At an investor conference subsequent to the last earnings release, UPST stated that it would no longer use its balance sheet to fund loans, as the market made it clear that it did not appreciate the ambiguity in the business model. Yet the company was still holding $140 million of non-R&D loans on its balance sheet as of the end of the quarter. 2022 Q2 Presentation Then in yet another stunning flip-flop, management has stated that it intends to use its balance sheet once again to fund loans. This is what they stated on the conference call: Why do this? We understand better than anybody how our model is performing today. We believe that it's well calibrated for the current economic environment and that the opportunity to generate outsized profits on our platform is significant right now. So we're comfortable putting our balance sheet to work as necessary to navigate this transition. We acknowledge that this is a significant shift relative to what we planned and communicated earlier this year. Yet, if my co-founders and I have learned anything after working together for more than 10 years, it's that a volatile environment requires thoughtful and nimble execution. We believe betting on our own marketplace will provide stability for the business as we move toward long-term committed capital, demonstrate confidence in our model, and take advantage of some of the economic opportunities we see available on our platform until lenders increase their originations again. In summary, it appears that the company is having issues funding the loans due to its typical funding partners being unwilling to extend credit in the current market. This decision to use its balance sheet seems necessary to not only sustain ongoing operations of its business but perhaps even also to prove the effectiveness of its algorithms during this tumultuous period. We can see below the main culprit of funding shortfalls. Loan funding from institutional buyers dropped off a cliff in the quarter, more than offsetting the strength seen from its bank and credit union funding sources.

Sep 08

Upstart extends personal lending to Arizona-based credit union partner

Upstart Holdings (NASDAQ:UPST) has allowed Vantage West Credit Union to offer personal loans on Thursday to new and existing members across Arizona. Vantage West, a credit union with over 170K members and assets totaling more than $2.6B, became an Upstart (UPST) lending partner in March, and will be part of the Upstart Referral Network. Through this partnership, Vantage West, through UPST's artificial intelligence lending platform, "will be able to efficiently lend to more creditworthy borrowers who are seeking access to credit," said Michael Lock, senior vice president of Lending Partnerships for Upstart. In mid-August, Upstart provides Alliant Credit Union with personal lending capabilities.

Aug 25

Upstart: Broken Stock Or Broken Company?

Summary Upstart is down 17% after its Q2 earnings and down more than 93% from its high. Is this a broken stock or a broken company? We analyze the earnings and what we can learn from some items, like the conversion rate. There are a few misconceptions about Upstart: that it needs cheap money or that big banks have their own AI models. Is Upstart a bankruptcy candidate? What I'm doing with my Upstart position that is deep in the red. Introduction Upstart (UPST) released its earnings two weeks ago. The stock was originally down, then up more than 10% and now down almost 17%.UPST data by YCharts I have held many volatile stocks over the years, but Upstart is in a category of its own. The stock is down a whopping 93% from its highs. UPST data by YCharts The question is then: is this a broken company or a broken stock? Or, in other words, is this a good long-term opportunity or should you stay away from the stock? As often with the most interesting questions, the answer is "it depends". I know that is an unsatisfying start for a lot of you, but just as in real life, in investing it's not as simple as black and white. If you are interested to know the details, then I think this article could help you. My initial reaction to the results On the evening of the results, I shared my initial thoughts on a chat with the subscribers of my marketplace, Potential Multibaggers. This is what I wrote there: The earnings are out for Upstart, not good but that's not a total surprise, of course. The stock was halted at -15% after hours for pending news, but there was not that much news, just that Upstart would take every necessary measure to find funding. The stock now trades down about 9%, so it's more or less flat compared to this morning. I have listened to the earnings call. Management said that the results were bad, but that they will do everything to return to the great company they really are. They sounded like an injured sports person who is frustrated because they want to prove they are good, but can't because of the circumstances (for Upstart, the injury is the macroeconomic environment). They will also cautiously take loans on their balance sheet again. They first did that, then turned back that decision because the market didn't like it and now just say something like: "Look, we have extreme confidence in our model, it has been adapted to macroeconomic circumstances for months now and we have the balance sheet to do this, so we are very confident about this." I think it makes sense. The problem is often not debt, but bad debt and from what we have seen, the results of Upstart are much better when it comes to predictability than those of the FICO score. Bottom line: not a great quarter, for sure, but the company grows on a YoY basis (by 18%) although QoQ revenue is down 26%. It will be a very volatile ride, with extreme ups and downs, but I'm not selling my UPST position on this. I'll probably not add much too, so just holding for now. If you have read up to here, you already know more of what I mean with that "it depends" from the introduction. The rest of the article explains the why of my conclusion. The Numbers Before we dive into the numbers, this is how Dave Girouard, Upstart's founder and CEO, opened the call: Today, we reported a decline in revenues, which is obviously disappointing and unacceptable to us. (...) there’s no getting around the fact that a decline in revenues is a business problem that we need to address. And this is how he concluded the earnings call: Thanks all for being with us today. Sanjay and I just want to make clear we’re not happy with our results. We’re not a company that likes to have a declining revenue from one quarter to the next. But we are – we feel, doing the right things to make the company as strong and as powerful as it can be in the future. I actually like that. It's straightforward. Overall, I found management much more determined and confidence-inspiring than in the previous two quarters. Frustrated, yes, but in a way that makes them want to prove that they are down, but definitely not out. On July 7th, Upstart reduced its Q2 2022 guidance from $300 million to $228 million. As most, but not all analysts had adapted their projections, the consensus anticipated Q2 revenues of $235.3M and predictably, Upstart missed that consensus. It reported revenues of $228.2 million, slightly exceeding its revised target but falling 3.1% short of analyst average expectations. Revenue was down 26% QoQ, a big drop. Also on July 7th, Upstart had reduced net income from about breakeven to a net loss of $31M to $27M. It lost $29.9M. Guidance was the worst part of the earnings. The company withdrew its full-year guidance, which didn't come unexpectedly. They maybe even should have done that earlier. They now see $170M for revenue, 30% lower than the consensus and down 25% QoQ. This has to do with adjustments in the fair value of the loans on their balance sheet. CFO Sanjay Datta on the earnings call: Net interest income was a negative component of net revenue this quarter, as we entered into multiple loan sale transactions, some of which incurred a negative fair value impact. And as the valuation marks of our remaining loans continue to be negatively impacted by the rising interest rate environment. So, they have sold loans worth less than previously accounted for and the same goes for the remaining loans on the balance sheet. This will remain a headwind in the next few quarters. Simply put: if you have a loan of 5% and you know there are loans available at 8%, which one would you want to buy as an institutional investor? That's why the 5% loans must be sold at a discount to their fair value. The company also guided for breakeven EBITDA, while the consensus stood at $22.1M. For EPS, guidance is a loss of $0.10 per share, $0.30 below the consensus of $0.20. Before we go any deeper, I first want to address some misconceptions I have heard about Upstart. Misconceptions 1. Upstart can only do well in a low-interest rate environment Cheap money provided by the Fed, that's what Upstart needs. Now that there is tightening, it will crumble. Something like that is buzzing around comments from individual investors. Let me be clear: Upstart doesn't need low-interest rates to thrive, it needs stable interest rates, just like all loan providers. If institutional investors think that interest rates will continue to go up, they will wait and that's what is happening here. They think they will be able to buy more interesting loans later and wait to buy. Once rates have stabilized more or less, you'll see demand return. 2. Banks already use AI, Upstart is unnecessary I keep hearing that banks use AI already but why do they still use the old FICO (FICO) score then? The answer is that this AI is not good enough. Upstart is only focused on this and that could make its AI much better than what banks have. It's like saying that a Lamborghini is useless, as there are already Hondas. One is clearly superior to the other. For those who would still have their doubts that the AI works, Upstart also directly answered that question in the earnings slide deck: Upstart's Q2 2022 earnings call slides And this stat clearly shows that Upstart seems to be working much better than FICO. Q2 2022 earnings call slides I'm not saying some big banks will never have AI that is as good as Upstart's. But if so, there will be one or two leaders and maybe the rest would be forced to turn to Upstart to not be left behind. But suppose all big-5 banks could do it sufficiently enough to drop FICO at a certain moment, even that is not a bear case for Upstart, as they are not the customers Upstart wants to partner with. It's all the rest of the banks and credit unions. Look at it this way: some big companies have made their internal software, but many more find it much easier to apply that of another company. More Insight In the previous quarter, the company had taken loans on its balance sheet, to smoothen things out. The market reaction was very negative and Upstart said it would no longer use the balance sheet for 'core loans', meaning their personal loans. They clearly said they would keep auto loans on the balance sheet, as they are there for R&D purposes. I have heard people calling this scammy or a stupid explanation, but it makes total sense. A bank cannot take loans from an unproven system on its balance sheet, so Upstart must prove that it works with loans on its balance sheet. They also did that with personal loans in the past. They sold them off when the system had clearly proven its superiority. With those numbers, they could convince institutional investors, banks and credit unions. Management now turned back the decision not to take core loans on the balance sheet. You could call that constantly changing your mind and that would be truthful, of course, but I think it's a good decision. When the circumstances change, you have to be able to adapt. Upstart is the lender for just a very small percentage of the loans, to smooth things out. The reason is that there is enough demand from consumers, but not enough from banks and institutional investors to sell the loans to. Dave Girouard on the conference call. Today, we’re in a funding-constrained environment, which is the primary cause of our revenue shortfall. In other words, Upstart has to turn down people who want a loan and who can't be served because there is not enough demand in the market to buy those loans. Taking some of these on your balance sheet if the risk-reward looks good doesn't sound like a bad idea at all in that context. Management repeated several times that they will not become bank-like and will not use leverage to be a lender. This was very, very, very important to me. Why do credit companies have a bad reputation? For a big part that is because of leverage. They need the cash flow from people paying back their loans; if too many people stop paying, there may be a problem. But that problem comes from leveraging. What Upstart does is different. Suppose 10% of people could not pay their loans back. That would already be very high. With $600M in loans on the balance sheet, let's take very conservative profits of 5%, even in that pessimistic scenario, Upstart would not lose much money. 10% of $600M could be $60M. And that is if nothing would be reclaimed, which is already very pessimistic too. Suppose the other loans bring in 5% on average. 5% of $500M means $25M in profits. In other words, in this very pessimistic scenario, the company would lose $35M, while it still has $790M in cash and equivalents. If you are leveraged, the losses mount, just as for investing and that's why it's so important to me that Upstart does not want to leverage its balance sheet. Right now, these are the delinquency rates Upstart's Q2 2022 investor presentation As you can see, they are above the levels of Q2 2020 (which I often call the pandemic quarter) but still just a bit above 3% for personal loans, the worst-performing category. That's normal and it's the reason why auto loans are actually a better business. There is collateral there (the car), unlike personal loans. That's why Upstart's venture into auto loans is promising. Dave Girouard gave three reasons for taking loans on the balance sheet. We're taking this step for a few reasons. First, there's an obvious information asymmetry where we understand better than anybody, how our model is performing today and how well it's calibrated for the current economic environment. Secondly, we believe the opportunity to generate outsized profits on our platform is unusually high right now. And third, we can bring a level of stability to our business. That's important to our longer-term goals while we work to put these committed capital structures in place. I think these are understandable reasons. But let me be very clear here: if the company would take on leverage for loans, I'm out, immediately, no matter at what price. A funding plan The company announced a plan to get the funding side of its platform back on track. Dave Girouard: As a result, we've concluded that we need to upgrade and improve the funding side of our marketplace bringing a significant amount of committed capital on board from partners who will invest consistently through cycles. We're currently evaluating a variety of opportunities to do just that. So we expect this will take some time to bring to fruition. I think this is a part of Upstart which shows that the founders are not traditional bankers. Girouard is the former head of what used to be Google Apps, then Gsuite and now Workspace. He's great at software and tweaking it to get better and better results. That's also why I don't have big doubts about the superiority of the software, especially if you add a top computer genius like co-founder and CTO Paul Gu, who was in the Thiel Fellowship program. The funding was a problem in the last quarters as well, albeit to a lesser extent. Maybe they already started working on a solution for that earlier, but they have not made progress in that case and they didn't communicate about it. What Upstart is basically looking for is funding that can take over the function of their balance sheet, through longer-term commitments. It's like permanent capital. That won't be easy, especially not in this environment where the capital supply is much tighter but it's not impossible either. How is this possible with more and more banks and credit union partners that funding is still difficult? Upstart's Q2 2022 earnings slides I can't think of any other explanation than the macroeconomic environment. Loans are priced according to their risk. In other words, the higher the likelihood of a successful repayment (with interest) the less they cost. When the likelihood of a bad payment goes up, the APR (annual percentage rates) also goes up. But when you expect the economy to perform badly over the next year or years, you distrust the pricing, as risk has increased. For Upstart, I think there is an extra obstacle and that it is that banks and credit unions, very conservative in nature, stick to what has proven itself over decades, no matter if the results of the new application seem superior. Or you stick to the highest score only if you use Upstart's platform. Those people are not very often the ones taking personal loans, as they don't need them as often, so the volume goes down. The fact that Upstart's partners hit the brakes can also be seen in the conversion rate. That's the number of rate inquiries that eventually lead to a loan. While that was 24.4% last year, and 21.4% in Q1 of 2022, right now, it's only 13.3%. Upstart Q2 2022 Earnings Slides This big drop means that Upstart's partners are not comfortable taking the loans. This is the reason why: Upstart blog post, written by CEO Dave Girouard

Shareholder Returns

UPSTUS Consumer FinanceUS Market
7D-3.3%-4.5%-3.1%
1Y-93.0%-38.0%-21.5%

Return vs Industry: UPST underperformed the US Consumer Finance industry which returned -38% over the past year.

Return vs Market: UPST underperformed the US Market which returned -21.5% over the past year.

Price Volatility

Is UPST's price volatile compared to industry and market?
UPST volatility
UPST Average Weekly Movement15.0%
Consumer Finance Industry Average Movement7.6%
Market Average Movement6.9%
10% most volatile stocks in US Market15.7%
10% least volatile stocks in US Market2.8%

Stable Share Price: UPST is more volatile than 75% of US stocks over the past 3 months, typically moving +/- 15% a week.

Volatility Over Time: UPST's weekly volatility (15%) has been stable over the past year, but is still higher than 75% of US stocks.

About the Company

FoundedEmployeesCEOWebsite
20121,497Dave Girouardhttps://www.upstart.com

Upstart Holdings, Inc., together with its subsidiaries, operates a cloud-based artificial intelligence (AI) lending platform in the United States. Its platform aggregates consumer demand for loans and connects it to its network of the company’s AI-enabled bank partners. The company was founded in 2012 and is headquartered in San Mateo, California.

Upstart Holdings, Inc. Fundamentals Summary

How do Upstart Holdings's earnings and revenue compare to its market cap?
UPST fundamental statistics
Market CapUS$1.69b
Earnings (TTM)US$90.88m
Revenue (TTM)US$1.08b

18.6x

P/E Ratio

1.6x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
UPST income statement (TTM)
RevenueUS$1.08b
Cost of RevenueUS$175.51m
Gross ProfitUS$900.11m
Other ExpensesUS$809.23m
EarningsUS$90.88m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)1.12
Gross Margin83.68%
Net Profit Margin8.45%
Debt/Equity Ratio113.1%

How did UPST perform over the long term?

See historical performance and comparison