What happened
Shares of Upstart (UPST 2.73%) popped 18% this week, according to S&P Global Market Intelligence. The artificial intelligence (AI) lending platform announced two new partnerships which could be beneficial for its growth prospects. As of 2:16 p.m. ET on Thursday, the stock is up 18.2% since last Friday's close.
So what
There were no earnings announcements to cause the stock to pop, but Upstart did put out two relevant press releases this week. First, on May 4, Upstart announced that its AI lending will now be on the Salesforce AppExchange. Many financial institutions use Salesforce for their customer relationship management (CRM) software. With Upstart's software now on Salesforce's app marketplace, financial institutions and banks using the AI lending platform will be able to easily work with their customers, hopefully improving the value proposition for using Upstart's products.
Image source: Getty Images.
Second, on May 5, Upstart announced that Firstmark Credit Union in San Antonio will be using Upstart's lending platform for personal loans. The bank has 100 thousand customers across the San Antonio area, which will hopefully give a boost to Upstart's loan volume.
Loan volume and banking relationships are vital for Upstart's growth. Why? Unlike a typical lender, Upstart's business is not to source and hold the loans but to price personal loans for other banks and lenders using its AI platform. For these services, the company gets a cut of each loan in revenue. More loan volume equals more revenue. For example, in the fourth quarter of 2021, Upstart's banking partners originated 495 thousand loans and $4.1 billion in loan volume, up 301% year over year. This led to total fee revenue of $287 million, up 240% year over year.
Now what
As the above section demonstrates, Upstart is growing its revenue quickly. It is also profitable, with $60 million in operating income last quarter. With a market cap of $7.5 billion, the stock trades at a trailing price-to-operating income (P/OI) of 52.
This might seem expensive at first glance. However, with a company growing revenue north of 250%, this valuation multiple should come down rather quickly as long as Upstart can maintain or expand its operating margin. That makes the stock a buy today given the success of the AI model and the continued growth of its personal lending and automotive lending platform. With two new partnerships with Salesforce and Firstmark Credit Union, Upstart is making good progress in that regard.
