Despite crashing 73% from its all-time high, Upstart (UPST 0.79%) stock is still up about 440% from its initial public offering price of $20. The difference highlights just how far it initially soared; at one point, the stock had delivered a gain of 1,907%.
There are plenty of fundamental reasons for Upstart's solid performance, including the fact that it's a profitable company, which sets it apart from many of its start-up peers in the tech sector. But here are two metrics even more critical to the stock's future returns.
1. Dealer rooftops
Upstart uses artificial intelligence to analyze more than 1,600 data points when a potential borrower is seeking a loan from a bank. Its capability towers over the traditional FICO credit scoring system, not just on breadth of analysis but also on speed. Upstart's algorithm is proven to deliver instant decisions 70% of the time, cutting out weeks of human-driven assessment.
The company began in unsecured loan originations for its banking partners, but in 2021, it made a seismic pivot into automobile loan originations. The auto loan arena is seven times larger than the unsecured market, and Upstart's success in this area can be measured by the increase in so-called dealer rooftops.
A dealer rooftop is simply a car dealership that has elected to use Upstart Auto Retail, the company's 2-in-1 sales and loan-origination platform. Over the last 12 months, the number of dealers using the software has soared by 269%.
Why is that important? Because more dealers using Upstart Auto Retail means more car loans originated. Upstart estimates that its dealer-partners will originate $1.5 billion in loans in 2022, and that brings us to the second key number to watch.
2. Transaction volume
Transaction volume is the lifeblood of Upstart's business. The company earns its money through fees when it originates a loan for its banking partners, so more loans equals more revenue and therefore more profit.
Upstart originated $11.7 billion worth of loans in 2021, and its quarterly originations between Q4 2020 and Q4 2021 more than tripled.
While automotive loans won't add much to Upstart's total in 2022, it's the sheer size of the market that could drive growth beyond this year. The company places its automotive opportunity at $727 billion annually, which dwarfs the unsecured market of $96 billion.
But this might only hint at what's to come. In Upstart's full-year 2021 presentation, it also highlighted the $644 billion-per-year small business loan market and the mammoth $4.6 trillion home mortgage market, which gives investors some clues about where Upstart could turn next.
