What Happened
Upstart Holdings (UPST -0.60%) had a rocky month of March as its stock price dropped 31%, according to S&P Global Market Intelligence. The fintech lagged the S&P 500, which was up 3.6% in March. Upstart is trading at around $115 per share, down about 24% year to date as of April 4.
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So what
Upstart Holdings is a consumer finance company that uses artificial intelligence (AI) to handle loan requests. Roughly 70% of its loan requests are fully automated, and about two-thirds are approved instantly through the AI. While it is not a full-service bank, it partners with banks to provide the loans. It also allows other banks and credit unions to use its technology platform for a fee.
Upstart released fourth quarter and full-year earnings in February, which showed a 252% revenue gain year over year in Q4 and a 264% annual-revenue gain in 2021 over the previous year. The Q4 gains were driven by a 301% gain in loan originations by bank partners. The young company posted net income of $58.9 million in the most recent quarter, up $1 million year over year.
But from March 2 to March 14, the stock price plunged from about $157 per share to around $89 per share, a 43% drop. What drove the decline?
Now what
Going back a few months, Upstartʻs stock price has dropped dramatically after a meteoric rise to $400 per share in October. It had been highly overvalued, like many growth stocks due to the 2020 to 2021 run-up, only to come crashing down.
So, while the price-to-sales (P/S) ratio of 12 and the price-to-earnings (P/E) ratio of 50 have come down to more reasonable levels, new geopolitical and macroeconomic concerns have emerged. Inflation has not subsided, and there are worries of a recession or an economic slowdown due to Russiaʻs invasion of Ukraine. An economic slowdown would hurt lenders.
But there were a couple of other things that might have confused investors. In February, Upstart announced a stock buyback plan, which is not typical for a young, growing company as excess capital is often used to invest in the company.
Also, Wedbush Securities downgraded Upstart to sell based on risks of relying on third-party funding in a period of recession or market turmoil, and weakening delinquency trends. On the flip side, Upstart is eyeing the auto loan market, which will significantly boost its addressable market and revenue opportunities. It's a stock to keep an eye on over these next few quarters.
