Upon coming out publicly, stocks typically take years to double their initial stock value. However, Upstart Holdings, Inc. (UPST), an AI lending platform, has accomplished the same in less than a year since its initial public offering (IPO), which rose from an IPO value of $20 - to much more than $250 per stock. According to The Motley Fool, if you bought $10,000 of UPST stock at the start of 2021, your investments would have increased to approximately $39,489 at the end of the year. Such remarkable stock performance is even more impressive given that UPST stock value has dropped by more than 60% since its all-time highs in the mid-month of October. Despite the market pressure in growth stocks, the shares really held up quite nicely. For example, when Upstart Holdings reached its all-time high in mid-October, the Ark Innovation Fund (ARKK) was still 27% behind its all-time high. After such a performance, it's tempting to believe that it's too late to invest in UPST stock. These returns may even entice some investors to sell and take the money, and while it may be a better time to reinvest in Upstart Holdings, Inc. In this article, we'll delve deeper into the company's long-term opportunity and determine whether UPST stock is a solid long-term investment.
After the excessive sales in November, Upstart Holdings, Inc. is ready for long-term investing with a few important service levels set to preserve its previous bounce. UPST stock's price has been reduced significantly from its mid-month of October highs of $400; however, the over 1,500% increase it enjoyed after its December 2020 IPO might've been a bit enthusiastic. With the stock value now down 60% from its highs, it seems to be a reason to contemplate adding UPST stock to your portfolio. Many financial technology companies compete with banking institutions, but Upstart Holdings, Inc. has chosen to collaborate with banks on its next-generation service. As a fast-growing firm in the lending market, this is a wonderful position to be in since higher rates imply increased profits for financial institutions or banks, which will certainly generate huge interest for the company's yet another product portfolio. According to Zacks, Dave Girouard, co-founder and CEO of the online lender, Upstart Holdings Inc., stated that his lending algorithm is 5 times more accurate than existing systems at appropriately displaying a person's ability to repay a loan. According to Girouard, on a scale of 1-100, present lending regulations are only about a 2 in detecting default risk, and his AI lending platform would bring banks closer to a 10 and plenty of opportunities to develop. The company's AI is always growing and will get more powerful and productive as more information is submitted to it.
UPST Stock Forecast
UPST stock is among the most frequently watched investments on social networks due to its high growth rate and price fluctuations. The stock's next significant trigger will be its upcoming earnings release in January; however, it may likely continue to see market volatility if interest rates increase. Analysts predict $0.52 per share in profits for the fourth quarter, a minor decrease from $0.60 per share in the previous quarter. Income is projected to be $262M, a 14 % rise from a quarter earlier and over a 200% rise from a year earlier. Morgan Stanley analyst James Faucette launched coverage on UPST stock with a $200 target price. Because of the outstanding performance of its issuances, Faucette conceded that UPST stock was already effective in convincing investors to accept credit risk. The analyst sees future growth as depending on the company's capacity to seek funds in the future. Jefferies analyst John Hecht, on the other hand, maintained a hold recommendation on UPST stock in early November, with a pricing objective of $300. Hecht stated that the stock value essentially reflected several of its strengths, including market saturation in personal loans, which proved to be a solid decision. According to Walletinvestor, UPST stock can be a beneficial long-term investment opportunity if you are seeking shares with a high return. With an Upstart Holdings, Inc. quotation of $148.970 today, Walletinvestor anticipates a long-term rise, with the UPST stock value estimate for December 21st, 2026 being $1339.920. The value is projected to be around +799.46% after a five-year investment. Walletinvestor says that by 2026, a $100 investment may be worth $899.46. However, due to the unique features of Upstart Holdings, Inc. stock, the forecast may be highly exaggerated or inaccurate.
Risks to Consider with Upstart
Upstart Holdings, Inc.'s stock value has risen since it came out publicly at the end of 2020, making it one of the most widely-followed stocks on social media. The company has a lot to admire, including its efforts to enhance consumer loans. However, like with any enticing investment, there are actual concerns that long-term investors should be aware of. Here are the concerns associated with Upstart, as well as how the company has dealt with them so far.
1. Concentration of Fees
As previously stated Upstart Holdings, Inc. is not a lender by itself. The company facilitates access to cheap loans for millions of individuals by partnering with banks and charging a fee for every loan generated. Fees from loan demand are responsible for 96% of the revenue generated by the fledgling company, which sends loan requirements to its financial partners. Cross River Bank, an FDIC-insured lender, situated in Fort Lee, New Jersey, is by far Upstart's biggest customer. In 2020, CRB was accountable for 67% of loans generated on Upstart's platform, accounting for 63% of overall revenue; one consumer accounts for a sizable chunk of revenue. Even though there are no signs of the partnership deteriorating, it is always possible, and given the extent of this relationship, this would unquestionably be disastrous for UPST stock. There are, nevertheless, hints of significant progress. When we realize that it was 79% year over year, the fairly scary 67% revenue metric becomes less intimidating. However, Dave Girouard recently stated that, although the company currently has roughly 25 bank partnerships, he'd be surprised if the company didn't have hundreds in the coming years. Upstart had only 12 bank partners in 2020. Since then, the number has already more than doubled. The number is expected to rise, which should assist in mitigating the disproportionate impact of Cross River Bank.
2. Traffic from Credit Karma and Intuit
Another thing to keep in mind is that Credit Karma accounts for a sizable amount of traffic. That figure was 52% in 2020, then fell to 49% at the beginning of the year, but Credit Karma still drives a significant volume of traffic. As of today, should Credit Karma be terminated, the partnership for any reason, Upstart's growth would very certainly suffer. And to make matters worse, Credit Karma is owned by Intuit, another financial company. The purchase happened right after Upstart and Credit Karma renewed their deal. So there's a risk in paying close attention to as a long-term investor. Intuit is not quite a major Upstart competitor, but given Upstart's performance, it's not a huge leap to believe Intuit may try to produce a competitive Upstart service. Intuit has huge amounts of money to spend if it so desires, something Credit Karma had not to have prior to the purchase. According to Dave Girouard, direct income channel growth, which occurs when a customer accesses the platform (Upstart) or a banking partner instead of a third party, significantly outperforms Credit Karma growth. That hasn't yet manifested itself in diminishing attention, but it should if the trend continues.
3. Monitoring Loan Metric Leads
Banks, Credit Karma, and Intuit continue to collaborate with Upstart Holdings, Inc. due to the obvious real approvals and APR advantages UPST stock gives without having to sacrifice losses. These benefits are the primary reasons why banks or other financial companies like Intuit do not develop a competitive product or service. For Upstart to keep growing, the company needs to keep proving itself as one of the facilitators of a greater, higher mortgage portfolio. If its service proves out to be duplicatable in the future, it will take a significant blow to its now enticing product offering. During its latest financial report, the company notified shareholders that an upgrade to its proprietary algorithm blend resulted in further lead increases in critical success factors.
What Makes UPST Stock Interesting
What makes Upstart Holdings, Inc. intriguing is it continues to surpass its growth projections. Upstart went public in December last year and has had excellent success recently. For each of its four listed corporation filings, Upstart has surpassed profit and revenue estimates. The new approach that the company is introducing to the lending process is proving to be quite successful. Since the beginning of 2021, the firm has increased the number of bank partnerships, indicating that local banking institutions are ready to move away from the credit score when deciding which lending applicants to serve. Here are factors that make UPST stock interesting.
1. Customer Concentration Plummets as Volume Increases
As mentioned earlier, one concern that Upstart Holdings, Inc. experienced earlier was that the vast majority of its lending volume originated from a single bank. If the same major partner stopped using Upstart, the organization would suffer immensely. This is why diversifying its consumer base would be beneficial to the organization. However, 67% of the Upstart volume of transactions issued in the first 9 months of 2021, linked to a single consumer, has been rapidly declining. Increased loan issuing is also contributing to this decrease in client concentration. Upstart loan volume increased by 26.5% consecutively and 348% year over year in the most recent quarter.
2. A High-quality Stock is Trading at a Low Price
As previously stated, UPST stock price has dropped more than 60% since its October highs. Although stock prices increased about 10% in the first week of December, they remain a real bargain. Inside the Q3, which was a few weeks back, the Upstart grew practically every aspect of its operations by triple-digit percentages. But, the market as a whole has been selling off numerous technology stocks in previous months, and the AI lending platform was no exception. Because of these unjustifiable sales, UPST valuation has dropped to a more acceptable level. While its valuation remains relatively high, it is far more reasonable than the prices at which it traded when the company was trading around $400 per stock. UPST stock now trades at 28 times sales and 238 times earnings, but that's still hefty for any stock but perhaps more manageable given the company's prospective development. Any long-term investor should take a deeper look when a quite desirable stock is on a bargain, especially shortly after the business reports outstanding profits.
The Bottom Line: Is UPST Stock a Solid Long Term Investment?
With the company strengthening and client concentration lessening, I think UPST is a solid long-term investment at the current rates. Some investors are concerned that UPST stock price is surpassing the company's potential to grow. But the reality is that the Upstart has a big opportunity in front of it. Despite the company's as well as the UPST stock success since coming out publicly, there are risks or concerns to consider with the company. The corporation has handled the uncertainties brilliantly, but that must persist if this investment is to be successful. Hence, UPST stock could be a solid long-term investment if you keep an eye on the risk concerns mentioned above in the long term. Furthermore, out of over 5,000 banks and other financial institutions in the U.S, Upstart has roughly 25 lending partners. The company is expanding its lending portfolio to include vehicle loans, and it hopes to grow into mortgages, student loans, as well as overseas markets in the future. Upstart's distinct offering is drawing an increasing number of clients. Even though Upstart has demonstrated nothing except business success, the market is offering shareholders a 50% discount. And this is what makes UPST stock such an interesting investment right now. Although an unpredictable growth stock like UPST should not be a big portion of any investor's portfolio, a small share of a balanced portfolio invested in UPST stock should yield profits in the next coming years.
Written by Allen Lee
Read more posts by Allen Lee