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<\/div>\n<\/p>\nUpstart Holdings (WKN: A2QJL7) went public in December 2020, and the fintech company immediately started pulling in good results. Strong first quarter results were followed by quadruple digital revenue growth in the second quarter and enthusiasm around the stock reached an initial peak. At one point, the stock price was up more than 1.200 %.<\/p>\n
But it's been downhill ever since. In October, two different Wall Street analysts downgraded the company, and in November, JMP Securities analyst Ronald Josey lowered his price target to $315. These events triggered a significant sell-off, and Upstart's stock is currently trading 38% below its 52-week high – although it is still up 715% since its IPO.<\/p>\n
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After this whirlwind, is Upstart still a smart buy? Here's what you should know.<\/p>\n
A unique business model<\/h2>\n
Until now, banks made their credit decisions on the basis of relatively limited information, in many cases taking only eight to 15 dates into account in their credit models. Dave Girouard, the former president of Google Enterprise, saw the limited reach of these models as a significant problem that made it difficult for consumers to access affordable credit. With a vision of a better system, Girouard left Alphabet in 2012, along with finance specialist Anna Counselman. The two were joined by data scientist Paul Gu. Together, the trio founded Upstart with the goal of changing the consumer credit industry.<\/p>\n
To improve on the weaknesses of traditional lending models, the fintech company relies on Big Data and artificial intelligence (AI). Its platform now captures over 1.000 data per borrower and correlates those variables with 10.5 million past repayment events (and rising) to quantify risk. So far, Upstart's unique business model appears to be an advantage. In this context, management believes that the company's AI engine can predict risk four to eight times better than traditional credit models.<\/p>\n
In practice, that means Upstart's bank partners can approve nearly three times as many borrowers while keeping fraud and loss rates constant. And every time a borrower makes a payment or misses one, Upstart's AI models get a little smarter. Over time, this network effect should strengthen the company's competitive advantage.<\/p>\n
The colossal size of the credit industry<\/h2>\n
Upstart began by helping bank partners make personal loans, a market worth 81 billion. U.S. dollars in the U.S. Last year, however, the company expanded into the auto lending space, acquiring Prodigy Software in March to accelerate that transition. This move brought the total addressable market (TAM) to 753 billion. US dollars.<\/p>\n
In the past year, Upstart has made significant progress in its auto lending ambitions. In the third quarter, seven bank partners signed up for the service and the company now works with 291 dealers, three times more than in September of last year. The management also noted that the number of car dealerships grows by an average of one every day.<\/p>\n
But here's the important part: management has discussed entering other lending industries, z. B. into the $4.5 trillion mortgage business as well as student loans and credit cards. To contextualize this colossal figure, Upstart's banking partners last year made loans of. US dollars awarded. This volume represents only 1% of his current TAM and much less than 1% of his potential TAM.<\/p>\n
An impressive financial track record<\/h2>\n
In the last twelve months, Upstart has tripled the number of lenders on its platform, and those lenders have 943.000 loans originated, an increase of 268% year-on-year. Not surprisingly, this has translated into strong sales and profit margins. And unlike many high-growth companies, Upstart is profitable on a GAAP basis.<\/p>\n
| Key figure<\/td>\n | Q3 2020 (TTM)<\/td>\n | Q3 2021 (TTM)<\/td>\n | Change<\/td>\n<\/tr>\n |
| Sales<\/td>\n | 213.9 million. US Dollar<\/td>\n | 620.7 million. US Dollar<\/td>\n | 190 %<\/td>\n<\/tr>\n |
| Net income<\/td>\n | 11.0 million. US dollars<\/td>\n | 77.5 million. US dollars<\/td>\n | 605 %<\/td>\n<\/tr>\n<\/table>\n SOURCE: YCHARTS. TTM = trailing 12 months.<\/p>\n Shareholders have good reason to believe that Upstart can maintain this momentum. The company's AI-powered business model benefits both borrowers and lenders by making it easier for consumers to access credit while increasing the return on investment for banks and credit unions. And that value proposition should become even clearer as Upstart gathers more data and turns the flywheel that influences its business.<\/p>\n An opportunity worth the risk<\/h2>\nEven after falling 38% from its peak, Upstart's stock trades at 34 times revenue, a much higher value than other fintech companies like PayPal and Square, which trade at nine times and. To be traded seven times the turnover. With such a valuation, shareholders should expect volatility in the share price.<\/p>\n Other than that, there are many positive things to report about Upstart. All three co-founders are still in leading positions. And as of March 2021, Upstart's officers and directors held over 25% of the shares, aligning their interests with those of shareholders. More importantly, management has already proven that they are capable of expanding the company into new markets. This bodes well for the future.<\/p>\n For these reasons, I think it's worth buying some shares in Upstart now. Just be aware that the stock can continue to fall. So don't invest all at once, but build a position through the average cost effect.<\/p>\n There is one company whose name comes up very, very often among The Motley Fool analysts at the moment. It is THE top investment for us for the year 2022.<\/p>\n You could also benefit. For this, you first need to know everything about this unique company. Therefore, we have now compiled a free special report that presents this company in detail.<\/p>\n This article reflects the opinion of the author, which may differ from the "official" recommendation position of a premium advisory service of The Motley Fool. Questioning an investment thesis – even our own – helps us all think critically about investments and make choices that help us become smarter, happier and richer.<\/p>\n Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. <\/p>\n","protected":false},"excerpt":{"rendered":" Upstart Holdings (WKN: A2QJL7) went public in December 2020, and the fintech company immediately started pulling in good results. Strong<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"yoast_head":"\n |