Is Upstart Holdings Stock a buy it now?

Assets received (UPST -7.89%) was one of the hottest tech titles last year. The cloud-based lending platform provider went public at $20 per share in December 2020, and its stock started trading at $26. It soared to an all-time high of $390 last October, but is trading again at around $26.

Should investors buy Upstart after this wild round trip? Let’s take a fresh look at its business, growth rates and valuation to decide.

Image source: Getty Images.

What does Upstart do?

To approve loans, financial institutions typically analyze a customer’s FICO score, credit report, and annual income to assess their creditworthiness. Upstart goes a step further by gathering additional data — including a client’s educational history, field of study, GPA, standardized test scores, and work history — to create a more comprehensive loan profile.

Upstart processes this data with its cloud-based artificial intelligence (AI) platform, then partners with banks, credit unions and car dealerships to provide personal loans. He says his approach discriminates less against younger customers who haven’t had the chance to rack up high credit scores. It also streamlines the Byzantine application process for personal loans with a single-page application that can be completed in about five minutes.

Upstart’s loans range from $1,000 to $50,000, with APRs between 6.5% and 35.99%, and typically last between three and five years. It does not finance loans on its own – it is simply an intermediary service that matches loans from banks and institutional investors with individual borrowers. Therefore, it derives almost all of its revenue from the transaction fees it charges for these services.

How fast is Upstart growing?

At the time of its IPO, Upstart only worked with 10 lenders. It ended its last quarter with more than 500 car dealerships and 57 banks and credit unions, and it continued to add about one lender per week.

Upstart’s core growth can be measured by the total number of loans processed by its banking partners and its conversion rate, or the percentage of its inquiries that are converted into actual loans. Both measures have been headed in the right direction over the past three years.





Bank partner loans

215 122

300 379


Growth (YOY)




Conversion rate




Data source: Upstart. YOY = year after year.

In Q1 2022, Upstart’s loans were up a further 174% year-over-year to 465,537, but declined sequentially from 495,205 loans in Q4 2021. Its conversion rate is also dropped to 21%.

Upstart blamed the slowdown on rising interest rates, which are pushing consumers to take out fewer loans, and other macroeconomic headwinds. Since Upstart isn’t actually a bank, it can’t take advantage of higher interest rates like growing savings accounts and more profitable loans.

How big will his slowdown be?

Upstart’s growth accelerated significantly in 2021 as it more than quadrupled its number of loans. Its contribution margin, which measures the margins of its fees after deducting the costs directly related to collecting those fees, also increased along with its adjusted EBITDA (earnings before interest, tax, depreciation and amortization) margins.






$159.8 million

$233.4 million

$848.6 million

Growth (YOY)




Contribution margin




Adjusted EBITDA

$5.6 million

$31.5 million

$231.9 million

Growth (YOY)

N / A*



Adjusted EBITDA margin




Data source: Upstart. * Adjusted EBITDA was negative in 2018.

In the first quarter of 2022, Upstart’s revenue grew 156% year-over-year to $310 million – but grew only 2% sequentially – as its contribution margin fell. dropped both year-over-year and sequentially to 47%. Its adjusted EBITDA margin rose 3 percentage points year over year to 20%, but that was also a sharp sequential decline from 30% in the prior year quarter.

It attributed its margin contraction to the expansion of its auto lending business, which Chief Financial Officer Sanjay Datta called a “negative contribution at this early stage” during the company’s latest conference call.

Upstart released its preliminary second quarter results on July 7. It now expects its revenue to grow just 18% year-over-year, compared to its previous forecast of growth of 52% to 57%, with a contribution margin of 47%, which is slightly higher than its previous guidance of 45%.

In a statement, CEO Dave Girouard said “inflation and recession fears have pushed interest rates up and put banks and capital markets on a cautious footing,” and his market was facing “constrained” financing, its lenders showing more caution in a more difficult macroeconomic environment. .

Is Upstart too cheap to ignore?

Analysts expect Upstart’s revenue to rise 27% to $1.08 billion this year, but its adjusted EBITDA to decline 42% to $134 million.

Based on those expectations, Upstart is trading at just twice this year’s sales and 16 times this year’s adjusted EBITDA, making it look cheap relative to its long-term growth prospects. However, this discount also suggests that it will struggle with higher interest rates for the foreseeable future. The upstart stocks might be worth the nibble, but investors shouldn’t take a bigger position until the macro picture improves.

About Joan Ferguson

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