Despite facing significant revenue challenges in recent years, Upstart Holdings (UPST), which uses AI to identify credit-worthy borrowers often missed by traditional lenders, could be nearing a potential turnaround. A strong Q3 revenue guidance of $150 million exceeds analysts’ average estimate of $135.3 million, suggesting a promising revival. The company’s CEO, Dave Girouard, attributes this turnaround to substantial advances in their AI model, a rejuvenated funding supply, and improved operational efficiency.
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The stock is up over 75% in the past three months and over 102.91% in the past year, with further upside potential, making it an attractive acquisition target for investors interested in an intriguing fintech opportunity.
Upstart Grows Footprint and Raises Capital
Upstart Holdings and its subsidiaries run a cloud-based AI lending platform offering diverse loan services, including personal loans, automotive retail, refinance loans, home equity lines of credit, and small-dollar loans. Serving as a bridge between consumer demand for loans and their banking partners, Upstart’s platform helps credit unions and banks fulfill this requirement.
A key strength of Upstart’s operation is its utilization of artificial intelligence. Its technology enhances the loan application and approval process, making it more efficient and effective. The company’s AI-enabled platform streamlines loan distribution and management for its banking and credit union partners.
The company announced that Blue Owl Capital has made a programmatic purchase commitment to Upstart. Under this agreement, Blue Owl’s Alternative Credit strategy will buy up to $2 billion worth of consumer loans on the Upstart platform over 18 months, commencing with a $290 million personal loan portfolio.
In a separate announcement, Upstart disclosed the pricing of $375 million of Convertible Senior Notes due 2029 in a private offering. The notes, which will be senior, unsecured obligations of Upstart, will bear an interest rate of 2.00% per year and mature on October 1, 2029. The proceeds will be used for various business purposes.
Analysis of Upstart’s Recent Financial Results
During the second quarter of 2024, the company reported revenues of $128 million, a year-over-year decrease of 6%. The loss from operations totaled $55.5 million, while GAAP net income posted a loss of $54.5 million. Adjusted net income loss was $15.3 million, a swing from the $5.4 million profit in Q2 2023. Finally, the adjusted EBITDA was negative $9.3 million, down from $11.0 million in Q2 2023. The adjusted earnings per share were -$0.17, which beat analyst expectations for -$0.39.
Management has given guidance for the third quarter, forecasting revenue of around $150 million, which exceeds the consensus projection of $135.36 million. Despite this, the company anticipates an adjusted net loss of roughly $14 million.
Heading into the second half of 2024, Upstart is estimating its revenue from fees to be around $320 million. Furthermore, the company expects to achieve positive EBITDA in the fourth quarter of 2024.
What Is the Price Target for UPST Stock?
The stock has been on a volatile ride, with a beta of 3.49, as it has climbed over 86% in the past year. It trades at the high end of its 52-week price range of $19.84 – $49.62 and shows positive price momentum, trading above the 20-day (37.39) and 50-day (34.48) moving averages. It appears to be priced at a premium, with a P/S ratio of 8.95x compared to the Credit Services industry average of 4.7x.
Analysts following the company have taken a cautiously optimistic view of the stock. For example, Wedbush analyst David Chiaverini recently upgraded the stock from Underperform to Neutral while raising the price target from $10 to $45. He noted that improving credit quality metrics and lowering interest rates could drive a positive inflection in the originations and adjusted EBITDA in the second half of 2024.
Upstart Holdings is rated a Moderate Sell overall, based on 10 analysts’ recent recommendations. The average price target is $31.44, which represents a potential decline of 54.39% from current levels.
Bottom Line on Upstart
Upstart seems poised for a promising turnaround from recent revenue challenges. The recent backing by Blue Owl Capital and the addition of $375 million in capital from a recent Convertible Senior Note offering positively impact the firm’s financial position.
Also, the company anticipates a return to positive EBITDA by Q4 2024, and analysts see the potential for the current environment to drive positive changes further. UPST could be an appealing prospect for those seeking an intriguing fintech opportunity.
