Shares of artificial intelligence (AI)-based fintech company Upstart Holdings (UPST 4.80%) dropped 26% in December according to data provided by S&P Global Market Intelligence. The company is still seeing the fallout from investors disappointed in fourth-quarter guidance as well as a general deflation in fintech stocks due to concerns about the omicron coronavirus variant.
Upstart was one of the biggest stories of 2021, as its AI-based platform won more clients and helped originate millions of loans for borrowers. Revenue skyrocketed early on, growing 90% year over year in the first quarter and then skyrocketing 1,018% in the second quarter, leading to high investor interest and a soaring share price. It's also profitable, and net income roughly tripled in the third quarter from $9.7 million to $29 million year over year.
Although Upstart beat revenue estimates for the third quarter, revenue growth cooled down to 250% year over year, and investor enthusiasm began to wane in November. That was also due to an even cooler year-over-year guidance for the fourth quarter of 200%. The stock looked overvalued at that point, and it continued to decline into December. It didn't help that fintech stocks overall have been doing poorly over the past two weeks as the omicron variant has made its rounds and restrictions have started up again in many locations, leading to fears about spending and the economy. Upstart stock ended 2021 up 255%, with shares trading at a trailing-12-month price-to-earnings ratio of 146.
Upstart still has tremendous potential and is one of my top picks for 2022. It has a huge addressable market for personal loans, and it made a deeper push into auto loans last year with its purchase of Prodigy Software. Upstart Auto Retail is now available in 47 states after only one before the acquisition. It's also pursuing a strategy to begin targeting mortgages in 2022, a $4.5 trillion addressable market.
It's still a fairly small company, with $620 million in trailing-12-month revenue and a $12 billion market cap. Its current, lower, valuation is more supportive of its growth prospects, and the stock price began to stabilize toward the end of December. Now might be the perfect time to buy shares before it begins to climb back up.