What happened
Shares of beleaguered fintech stock Upstart (UPST -3.95%) dropped another 14% in April according to data provided by S&P Global Market Intelligence. It fell along with the broader market after an upswing in February, and it's already making its way back, up 3% in April.
So what
Upstart might have been the top standout stock in 2021, gaining more than 850% before collapsing in a heap. It's now lost 96% of its value since those highs.
The company uses artificial intelligence to assess credit risk, and more clients were partnering with it, since it was able to approve more loans without increasing risk to the lender. However, since the economy began to falter and interest rates were raised, revenue has been declining, and the company went from net profits to net losses. This is partially because in this kind of environment, fewer loans are being generated. The ones that are will naturally come with higher risk of default as rates increase, which means Upstart's technology isn't nearly as valuable right now.
By all accounts, the 2022 fourth quarter was ugly. Revenue declined by more than half from last year, loan originations were down 62%, and net income went from $58.9 million last year to a loss of $55.3 million this year.
Management is expecting revenue of $100 million in the 2023 first quarter. Not only is that about two-thirds less than last year, it's also about 15% below revenue from two years ago.
Now what
Investors actually sent Upstart stock up after the report. Management remains confident that it has better technology and more data points than it did last year, positioning it to succeed in the future. For example, model accuracy has improved more in the past seven months than in the past two and a half years. In some ways, this dark period may prove to be a blessing in disguise, as it lets the model test these unprecedented scenarios.
Upstart also still has a huge market opportunity. It added another nine credit partners in 2022 for a total of 91, and it added 76 auto dealers for its auto product for a total of 778. It hasn't yet even entered its largest potential market of mortgages, which it plans to enter this year.
Investors are liking the possibilities, and Upstart stock is up 24% this year. It trades at a price-to-sales ratio of 1.7, which is quite cheap, but it comes with risk. Investors who don't already own shares might want to wait until the company reports some positive news.
