After some rough years following the early days of the pandemic, Upstart (UPST 0.87%) has regained its momentum in a big way. The company is expecting to report its first billion-dollar revenue year ever in 2025, and growth has been impressive throughout the business.
However, Upstart is still a relatively small company with a market cap of about $4.5 billion. The stock is about 88% below its all-time high, and the strong momentum hasn't quite been reflected in the performance of the share price.
I'm going to make a bold prediction. Within the next decade, Upstart will be worth more than buy now, pay later (BNPL) leader Affirm (AFRM +1.02%).
Now, I'm aware that this might sound like a stretch. After all, Affirm has a $23.5 billion market cap -- about five times that of Upstart. And to give credit where it's due, Affirm's business is performing very well, and its leadership team has done a fantastic job of navigating a challenging environment over the past few years. But Upstart's opportunity is simply massive, and the momentum in a less-than-ideal lending environment is encouraging.
Upstart's growth and potential
We'll get fresh numbers from Upstart soon -- the company is slated to report results Nov. 4 -- but here are some of the key points from the second quarter:
- Origination volume of $2.8 billion, up 154% year-over-year.
- Revenue of $257 million, more than double what it was a year prior.
- 21% adjusted EBITDA margin and GAAP profitability for the first time in years.
This could be just a starting point. The personal loan market in the U.S. is well over $100 billion in annual volume, and the data is increasingly showing that Upstart's methods of predicting loan defaults is more effective than the traditional ones.
Perhaps most exciting is that Upstart's newer verticals -- auto loans and home loans -- are showing incredible momentum and are much larger markets than personal loans. Auto loan originations grew sixfold over the past year, and home loan originations grew 67% sequentially. Both are still relatively small components of the business, but are massive opportunities, especially home equity loans, which is Upstart's home loan focus. After all, U.S. homeowners are sitting on $35 trillion in home equity -- the most ever -- and there's massive potential as rates come down.
Should you buy Upstart today?
It's important to emphasize that even if I'm right (which admittedly is a big 'if'), Upstart is likely to have above-average volatility along the way. It isn't a stock that's right for everyone, and while I wouldn't exactly call it a speculative investment, there's a lot that could potentially go wrong.
