Shares of Upstart Holdings (UPST 2.76%) stock fell 19% in February according to data provided by S&P Global Market Intelligence. The credit evaluation platform reported earnings and guidance that disappointed investors.
It's tough to be in this business right now
Upstart operates a credit evaluation platform driven by artificial intelligence. It boasts that it can identify more borrowers for lenders without increasing risk, and creditors were taken with this idea before interest rates went through the roof. However, the platform may not work as well under current circumstances, and Upstart's business has been feeling the pain.
It's been in a downward spiral for more than a year, and it didn't get any relief in the 2023 fourth quarter. Revenue declined 4% year over year, its sixth straight quarter of declines. Transaction volume was down 19%. Net loss was $42.4 million, an improvement from $55.3 million last year.
Full-year revenue was down 39% from last year, with a $240 million loss, more than double last year's $109 million.
On the bright side (yes, there was one), management is guiding for 2024 first-quarter revenue of $125 million, or a 21% increase from last year. However, it's still expecting a $75 million loss.
Upstart continues to ink deals with credit partners, and it's launching its home equity product in more states. It's already available in 12. Mortgages are its largest market opportunity, worth $1.5 trillion, and the company is positioning itself to succeed when the climate is less hostile to its business.
Is Upstart stock worth the risk?
Upstart stock has been extremely volatile since going public. It gained more than 250% last year before crashing, and it's still up 40% over the past year despite its poor performance. At the current price, shares trade for more than 4 times trailing-12-month sales, which isn't very cheap considering the performance and the risk.
Upstart's long-term premise still looks compelling. Looking out 10 years from now, it might be in an amazing position, having demonstrated its value and relevance over a sustained period of time. But there's no reason to rush in right now. Even if the Federal Reserve cuts interest rates this month as expected, it will take time to filter down to Upstart and even longer for Upstart to reflect any progress. I would recommend that investors wait to see real improvement before taking a new position.
