Upstart Holdings (UPST 7.67%) stock isn't for the fainthearted. It was up more than 400% at one point last year before losing about half of its value, ending 2023 with a 209% gain.
That was just last year. It's been volatile almost since it went public, skyrocketing before plunging, mirroring the stunning reversal of the company's fortunes. Will anything change in 2024? Let's see where Upstart is likely to be in a year from now.
An industry ripe for disruption
Upstart operates a credit-evaluation platform powered by artificial intelligence (AI). It can run millions of data points through its system to assess a borrower's credit risk more accurately than a traditional credit model, and Upstart says it approves more loans without adding risk to the lender. Even with its current problems, which I'll get to in a moment, Upstart's platform approved 44% more loans than traditional models would as of the most recent data. As it adds millions of new data points constantly, especially considering the current economy's changing interest-rate trends, its model becomes even more accurate.
NASDAQ: UPST
Key Data Points
It's clear how this could revolutionize the lending process, and Upstart has been adding credit partners to its platform consistently. It now has more than 100 lending partners plus a growing auto-loan segment. It recently launched its first home-loan product, which is live in four states and soon to launch in four more. The mortgage industry is the largest loan segment, with a $1.8 trillion market. That's just based on trailing-12-month volume, and the housing market has been suppressed over the past year; it was previously more than $4 trillion.
Over this year, it's likely to add more credit partners and launch its home product in more states. It has other products in the pipeline as well.
Great idea, bad timing
If Upstart's performance when interest rates were low is any indication, it has a clear growth path. Revenue was growing reliably at triple-digit rates for several consecutive quarters, even reaching four digits at one stage.
However, if its performance when interest rates are high is any indication, its use may be limited. It has reported five consecutive quarters of double-digit sales declines, with a sixth expected. Upstart releases fourth-quarter earnings results next week.
It may just be a matter of time until Upstart's technology is more widely accepted among creditors as an alternative to traditional credit scores. It may gain that trust as its loans perform better even under challenging circumstances. In a few years from now, it may have a much more resilient product because it includes all of the data from the current economy.
If interest rates come down as expected, there will be more money flowing from banks to borrowers and more use for Upstart's platform. In a year from now, Upstart's revenue is likely to be moving up again. Losses are already improving from last year, and as Upstart begins to scale again, it could move back into positive territory.
In one year from now, though, interest rates aren't likely to get as low as they were -- near 0% -- just around the time Upstart went public. So this isn't so much of a "getting back to normal" case as it is another year of uncertainty.
How will Upstart stock fare?
Upstart stock hasn't followed a typical trajectory, making it all that much harder to determine where it will go from here. It flourished last year despite terrible declines and losses and a harsh operating environment.
Given that Upstart fans push it up based on almost any good news, it's likely to soar if it demonstrates improvement. If the stock gained 209% last year, by next year, it could be that much higher. However, I would still caution against buying it until it demonstrates sustained improvement. Otherwise, the stock could fall just as fast as it can rise. Since you can't time the market, that could end badly. It's better to wait until you have more confidence in Upstart's potential to succeed long term.
