Upstart Holdings (UPST +0.67%) stock has been all over the place during the past few years, soaring to stardom before losing 90% of its value. It has more than doubled during the past year despite continuing net losses, though it's still down about 80% from its all-time highs.
The market celebrated its fourth-quarter report, and 2025 could be a transition year for the fintech company. Let's see where it might be a year from now.
Business: It depends on interest rates
Investors have been excited about Upstart because it offers something truly disruptive and valuable in a huge industry -- a credit evaluation platform it says can approve more loans without increasing risk to the lender. Increasing a lender's capacity to extend credit without adding risk of default is a game changer for the industry.
However, higher interest rates have made it harder for the platform to identify more good borrowers. When rates are high, default risk is higher, too. Beyond that, demand for loans declines because fewer people are looking to borrow money when rates are high.
NASDAQ: UPST
Key Data Points
Upstart's loan volume fell in recent years, but it increased 68% year over year in 2024's Q4. As rates fall and borrowing resumes, volume likely will increase more.
In the meantime, Upstart is launching new products and expanding. It recently introduce its first home product, a home equity line of credit, and it's now live in several states and Washington D.C. Management is working on credit card products and innovative loan products, and its small-dollar loan product grew 115% year over year in the quarter.
It added 28 lending partners to the platform in 2024, and that number should keep rising during the next 12 months.
Revenue: Back to growth
Revenue is a similar story to volume. Although it fell for about two years, it increased 56% year over year in Q4. For the full year, revenue rose 13%. Revenue follows business trends, and as business picks up, revenue should, too. Upstart is also improving the artificial intelligence (AI) models that power its platform, and management expects its newer models to be in operation as more people shop for loans.
For 2025, management is projecting revenue of $200 million in Q1, or 56% more than last year, and $1 billion for the full year, or a 57% increase.
The outlook is based on interest rates remaining unchanged. Interest rate reduction could easily lead Upstart to boost its forecast.
Profits: At breakeven
Although volume and revenue are growing again, Upstart is still reporting net losses. That's not surprising, since profitability typically takes time for new businesses. Startups almost always need to reach a certain scale before positive net income follows.
But the financial results are moving in the right direction. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $38.8 million in Q4, up from $600,000 last year, the second consecutive quarter of positive adjusted EBITDA. The net loss was $2.76 million, a big improvement from the net loss of $42.4 million a year earlier.
The exciting news in the report was that Chief Executive Officer Dave Girouard said he expects Upstart to be "at least breakeven" based on generally accepted accounting principles (GAAP) by year-end.
Stock: Volatile
Upstart stock has been volatile since the company's initial public offering in December 2020, and that hasn't changed. It trades at a price-to-sales (P/S) ratio of more than 12, which is quite pricey considering its financial position. There's some growth built into that price, but as Upstart recovers, the market thinks it will grow fast enough to warrant a rich price tag.
Upstart's model should become the go-to for lenders over the next few years, and over time, it should be able to prove itself under more favorable macroeconomic conditions. I still wouldn't take a huge position in Upstart stock, but risk-tolerant investors could make a small purchase as the company begins its comeback. If everything goes the way management expects, Upstart stock could go much higher in 2025.
