The financial technology firm trailed the S&P 500, down 1%, and the Nasdaq 100, up 1.9% in the month. As of Dec. 3, Upstart was trading at about $173 per share and was up about 324% year to date (YTD).
Upstart is an online lending platform that uses artificial intelligence (AI) to handle loan requests from customers. It makes most of its revenue by allowing banks and credit unions to embed its technology into their systems, collecting fees for every loan that’s originated. Upstart also offer loans through its website, which it then sends out to its bank partners to secure.
So it doesn’t have the credit risk, nor does it have to spend as much to acquire its own customers. In addition, Upstart has low overhead, and its income is mostly fee-generated.
Since Upstart went public on Dec. 15, 2020 at $20 per share, it has been on a tear and is now up 324%. It reached a high of $390 per share on Oct. 15 and has fallen 54% since then, including a 36.4% drop in November.
Most of that November decline came on Nov. 10 when it plunged 18% the day after the company reported third-quarter earnings. Should investors be concerned?
The drop wasn’t due to a bad earnings report. In fact, Upstart beat expectations, with revenue up 250% year over year (YoY) to $228 million. Fee revenue accounted for most of that — $210 million, an increase of 235%. The company did $29.1 million in net income, or $0.30 diluted earnings per share, up from $0.10 one year ago. Adjusted earnings per share (EPS) was $0.60, up from $0.16 in Q3 2020. It blew out consensus earnings estimates, which were $0.30 EPS.
CEO Dave Girouard put the San Mateo, California-based company’s success in basketball terms:
Since Upstart’s IPO a year ago, we’ve more than tripled our revenue, tripled our profits, tripled the number of banks and credit unions on our platform, and tripled the number of auto dealerships we serve. With that many 3s, Upstart is becoming the Steph Curry of the FinTech industry.
So, why the drop? It was likely related to projections for a fourth quarter that could be slightly less robust than the market expected, as Upstart projected revenue would be flat and earnings would be down — sequentially, not YoY.
But given the rapid growth the company has had, the drop in valuation is not too concerning for a company with great long-range potential — like Curry, a highly regarded basketball player.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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