Upstart (UPST 1.90%) has been an excellent performer in recent years, with the stock up by 168% over the past three years. And there are some good reasons it has done so well.
Most significantly, Upstart's business has grown tremendously, even in a so-so environment for lending. In the second quarter, Upstart's loan origination volume soared by 154% year over year and revenue more than doubled. And not only was the top line strong, but Upstart also reported $6 million in GAAP net income, marking a return to profitability for the first time since before the 2022 bear market.
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The biggest potential catalyst to watch
Upstart is mostly known for its personal loan business. Personal loans made up 94% of Upstart's loan volume in the second quarter and until recently was essentially the sole revenue driver.
However, Upstart has two other lending verticals -- auto loans and home loans. It launched auto loan capabilities a few years ago and has only been in the home lending industry for a little over a year. And it's these new verticals that could take the business to the next level.
Auto loan originations have grown by about 500% over the past year on Upstart's platform. Home loans grew roughly ninefold over the past year and increased 67% sequentially in the second quarter. Combined, both make up about 6% of Upstart's loan volume today. But these are both massive markets and could grow into the dominant part of Upstart's business eventually.
The auto loan industry in the United States is roughly $700 billion in annual volume. Home loan volume is a much larger industry, with about $2 trillion in mortgage volume in a typical year. If rates fall, mortgage originations could get interesting, as homeowners are sitting on $35 trillion in home equity -- and Upstart is focused on home equity lines of credit, or HELOCs.
