Upstart‘s (NASDAQ: UPST) stock more than doubled over the past 12 months. The online lending marketplace, which had fallen out of favor as interest rates rose in 2022 and 2023, became more attractive as the Federal Reserve finally reined in rates again.
But even after that impressive rally, Upstart’s stock still trades more than 80% below its all-time high from October 2021. Let’s check out four reasons it’s worth accumulating before it posts its fourth-quarter earnings report on Feb. 11.
Upstart’s online platform approves loans for banks, credit unions, and auto dealerships. But instead of reviewing traditional data like an applicant’s FICO score, credit history, or annual income, it crunches nontraditional data points — including previous jobs and education — to approve a broader range of loans for younger and lower-income applicants with limited credit histories. It claims that AI-driven approach “provides about 5X more risk separation than FICO for loans.”
Upstart had also fully automated 91% of its loans at the end of its latest quarter. That efficient blend of automation and AI makes it a disruptive player in the loan approval market. It also continues to expand its new T-Prime program to provide better rates to “super-prime” borrowers while reducing its exposure to riskier ones.
Upstart’s business flourishes when interest rates are low, while rising rates usually drive people to take out fewer loans and financial institutions to put less money on the table. When that happened in 2022 and 2023, Upstart carried more of its marketplace loans on its own balance sheet as its cautious lending partners reined in their loans.
That pressure caused Upstart’s stock to sink to an all-time low of $12.40 in late 2022. However, the Federal Reserve already cut its benchmark rates three times in 2024, and it previously penciled in two more rate cuts in 2025. If that happens, its lending activity will pick up again, and its cyclical downturn will end.
Upstart’s growth can be gauged through its originated loans, conversion rate (the percentage of its total inquiries leading to approved loans), and contribution margin (the ratio of its fees it retains that are revenue). All three of those key metrics improved in the first nine months of 2024, and its revenue grew again following two years of declines.
|
Metric |
2020 |
2021 |
2022 |
2023 |
9M 2024 (YOY) |
|---|---|---|---|---|---|
|
Originated Loans Growth |
40% |
338% |
(5%) |
(59%) |
12% |
|
Conversion Rate |
15% |
24% |
14% |
10% |
15% |
|
Contribution Margin |
46% |
50% |
49% |
63% |
60% |
|
Revenue Growth |
42% |
264% |
(1%) |
(39%) |
12% |
Data source: Upstart. YOY = Year-over-year.
