The artificial intelligence-powered lending platform provider Upstart (UPST -7.89%) is one of the more popular fintech companies to go public over the last several years. The company did an initial public offering (IPO) in December 2020 during a time when tech valuations were starting to take off, and it's been a roller coaster ride ever since. If you had invested $1,000 in Upstart around the time the company went public, here's how much money you would have now.
A bumpy ride
Since its IPO less than two years ago, Upstart has seen some of the highest of highs and also the lowest of lows. The company believes it can underwrite loans better than traditional credit underwriting methods such as Fair Isaac's FICO scoring. It also claims it can generate 75% fewer loan defaults than traditional banks at the same loan approval rate.
Upstart's platform originates loans that are either purchased by banks and credit unions or sold to investors. The company's main product is unsecured personal lending but it is also ramping up auto lending and plans to apply its technology to other lending categories. Management believes its AI-powered underwriting can identify borrowers with lower FICO scores that are still creditworthy, opening up access to traditional lending products for these borrowers and bringing new customers to financial institutions.
The company got off to a hot start soon after its IPO. It originated nearly $11.8 billion of loans through its platform and generated a profit of more than $135 million in 2021, which isn't common for a fast-growing fintech. Investors couldn't get enough and at one point in late 2021 they drove the stock price up to more than $400, which gave the shares an unbelievable valuation. Upstart's credit quality was also significantly outperforming expectations in 2021.
UPST PE Ratio data by YCharts.
However, things began to go south once inflation started to come on strong in late 2021 and early 2022, leading the Federal Reserve to turn hawkish and indicate that it would be raising interest rates aggressively this year.
This created problems for Upstart because the investors that purchased the bulk of its loans started to get spooked about how credit quality might hold up as federal stimulus programs ended and consumer savings dwindled. Higher interest rates also raised loan investors' cost of capital, which led them to demand higher returns on the purchased loans, requiring Upstart to essentially raise interest rates for its customers.
This hurt loan demand, and funding from investors has really hit a wall in recent months. As a result, origination volume and revenue got crushed in the second quarter of the year, leading to a wider-than-expected loss. Upstart's stock has since fallen to a low of $24 before recovering to around $29 as of this writing.
How much would you have?
Upstart listed shares in its initial public offering at $20 each but closed its first day of trading at $29.47. Retail investors rarely get in at the IPO price, but if you had invested in Upstart on that very first day, you still might be up decently right now.
Had you gotten in at $25 per share you have about a 16% profit. However, by the end of that month and within two weeks of the IPO, Upstart was trading at more than $40 per share, and the company wouldn't return to that level until midway through this year on the way down.
Realistically, if you didn't invest on the day of Upstart's IPO, you are likely sitting on a loss right now. However, two years is rarely long enough to judge an investment and many investors still believe Upstart can succeed, so there is likely still time for the Upstart bulls.
