Investors who have remained confident about Upstart Holdings (UPST +5.29%) stock throughout its challenges are finally starting to see the light at the end of the tunnel. The credit evaluation company reported excellent progress in the 2024 fourth quarter and an even better outlook. The stock soared on the news and is already up 44% in 2025. Let's see what got the market so excited, and what to expect from Upstart right now.
Getting back to growth
Upstart released stellar fourth-quarter earnings last week. Revenue increased 56% year over year to $219 million, and loan volume was up 68%. For the full year, revenue was up 24%, and Upstart added 24 new credit partners. Revenue is still off of highs from when interest rates were near zero, but the company is finally in recovery mode.
UPST Revenue (Annual) data by YCharts
Although the Federal Reseerve has cut rates a couple of times, they're still high, so this was a welcome update. CEO Dave Girouard said that while it did benefit from a macro tailwind, the bulk of the top performance is attributable to the company's proprietary models that separate risk and identify good borrowers better than traditional models.
The investment thesis for Upstart is all about its innovation in credit risk tools, and part of the concept is that it improves over time with machine learning and updated models. As the platform has more data, it's finding new factors that create more accuracy and lead to more approvals. Girouard noted that it backtested some of the tools is has developed today based on the macro environment, and had it had them two years ago, it would have avoided 55% of excess loan defaults over the period. So even with interest rates that are still high, it's becoming a more valuable product because it has data from this more challenging environment.
NASDAQ: UPST
Key Data Points
Management is investing in its future, and it set out strong goals for 2025. Girouard wants to upgrade its artificial intelligence (AI) models and "dramatically increase" its pace of model innovation. He quoted a former employee saying that "Upstart is building the foundation model for credit," and he wants to supercharge its lead in AI for credit risk.
Scaling to profits...even at current interest rates
If that weren't exciting enough, management gave inspiring guidance for the first quarter of 2025 and the full year. For the first quarter, it's expecting $200 million in revenue, or a 56% increase year over year, and a $20 million net loss. For the full year, it's expecting $1 billion, or a 57% increase, an acceleration from 2024. And the best part is that it's expecting net income to be at least breakeven. The guidance calls for profits in the second half of the year.
Management said that its financial modeling assumes interest rates will be where they are today. There may be further rate cuts this year, and if they go through, Upstart is likely to report even higher growth and hit net profits even sooner.
There are no guarantees with guidance, but what Upstart has in its favor is learned lessons. Its platform is more potent because it's been built up with data from higher interest rate conditions, and that makes it more likely that it can predict future outcomes with greater accuracy and that Upstart will return to profits this year.
Can you handle volatility?
Upstart stock has had a volatile journey from its not-so-humble beginnings. If you'd bought at its high, you'd still be down $0.77 on the dollar. So even if you'd held through the worst, you'd still be a ways off from recovering losses. If you bought at its low, you'd be quite ok right now.
Is the worst behind it? Could be. At the current price, Upstart stock trades at 12 times trailing-12-month sales. If it keeps climbing from here, that could be a reasonable valuation. But there's a lot of confidence built into that price. If it does break even this year, expect the stock to soar. But it could reach a nosebleed valuation quickly, so even though it's reporting great progress, I would only recommend a position for the highly risk-tolerant investor.
