Can I trade Upstart stock? In the past decade, the fintech industry has been evolving rapidly. This change leads to new companies offering new solutions to consumers and financial institutions. Many new digital assets, such as NFTs and cryptocurrencies, were created. Assets aren’t the only financial resources that can be affected by this technological change. Liabilities can also be part of the fun. Some companies like Upstart want to change how financial institutions give out loans to their customers.
The company uses artificial intelligence (AI) to decide on the creditworthiness of clients. When the stock went public in December 2020, it became an instant hit. In October 2021, it reached an all-time high but has lost more than 90% of its value since. Below, we will take a look at Upstart and its competitors. Is there any hope for AI lending companies to overtake traditional lending habits? Let’s take a look.
Before entering Upstart stock, look at the company’s business model. $UPST was founded in 2012 in the US. In late December 2020, the company went public. Upstart’s business model is simple but requires a technology still in its early stages: artificial intelligence. It is a lending platform that uses AI to give loan applicants with fair/average credit an opportunity to get a loan.
It connects applicants to financial institutions in all 50 US states. Upstart is the intermediary. Traditional financial institutions look at your credit score, which is more restrictive for some lenders. We will expand more on this later. On the other hand, Upstart’s requirements are much more flexible and look at more characteristics.
How does Upstart make money? A percentage of every loan payment goes to Upstart. The more loans the company creates, the better its earnings will be. The loan amount can go up to $50k with an APR between 3.09 and 35.99%. Upstart also charges various administration fees for its services. Loans aren’t going anywhere, so Upstart should have a lot of business. Let’s take a look.
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Upstart Stock Since IPO
How has Upstart stock performed since its IPO? The company went public at the end of the first COVID-19 year. Many things were still uncertain about the economy and where the pandemic was heading.
Back then, stimulus checks and government help were thrown left and right. After a tough economic period, loans were increasing once again. For Upstart, loans between 2020 Q2 and 2020 Q3 increased sevenfold. When the company went public, it generated over 100k loans per quarter.
That number kept growing, and so did the stock. In 2021 Q4, Upstart generated almost 500k loans. Coincidentally, the stock also hit its all-time high, just over $400. It’s all downhill from there.
At the moment, the stock is trading at \$35. What was the cause of this significant price drop? In the two subsequent quarters, loans decreased to 465k and 321k.
The company wasn’t growing anymore. We can attribute this to higher interest rates, inflation, a slowing economy, the war between Russia and Ukraine, and other economic factors. Some analysts believe there is another important factor.
Some American financial institutions lack faith in Upstart’s credit technology. Despite Upstart’s claims and data that their technology is better than FICO’s, financial institutions don’t seem impressed. Perhaps once the issues we face in the economy subside, the market will have more faith in Upstart.
Upstart Stock Future
Many analysts feel that Upstart stock has seen its lowest point. Financial institutions will use the company’s technology to their advantage if the loan default rate doesn’t go overboard.
As for the markets, they might be waiting for Upstart to expand its business. The loan market isn’t the only financial vehicle around. To begin with, Upstart can expand internationally once it meets all the requirements.
Despite its disappointing Q3 guidance, many hope the company will perform much better. There is a lot of positivity in its credit AI model. To have a better idea about the market, in the next section, we will explain the FICO credit system, and we will take a look at one more public company working in that field.
FICO Credit Scoring Stock (NYSE: FICO)
Which company can we salute for the current credit score system we use? The answer is FICO. The company began in 1956 and went public in the ’80s. Ever since, the company has expanded to 45 locations worldwide, from banks to insurance companies.
It supplies 95% of all financial institutions in the US with credit scores. FICO also provides debt collection, recovery, fraud protection, compliance, and other financial services. In Canada and the US, major credit companies rely on FICO for accurate credit scores and advice regarding customer loans.
FICO has over 200 patents approved and pending worldwide for its credit scoring system and algorithms that aim to predict customers’ financial behaviors. Any score below 600 translates to difficulties in paying back a loan. FICO is almost a monopoly in its industry. Very few companies can compete with this giant.
However, companies like Upstart are trying to revolutionize this industry by adding other metrics to rate a customer’s capacity to repay a loan. Will FICO survive as a monopoly after so many decades, or will the following companies prevail? And what will that mean for Upstart stock?
LendingClub (NYSE: LC)
LendingClub works in a similar space as Upstart. Since its IPO in December 2014, the company has gone through the same rollercoaster ride as Upstart.
The company had to battle rising interest rates and internal issues with loans. The fintech originated personal loans and sold them on the secondary market.
The key difference between LC and Upstart is that LC holds some of its loans, unlike Upstart. Buyers would make money from the interest rates generated by the loans. The loans were sometimes risky but came with a high-interest rate.
With time, some financial institutions discovered that LendingClub was issuing loans that didn’t respect certain guidelines. Borrowers who weren’t qualified obtained loans. Many investors began to doubt LendingClub’s model, and the stock crashed.
Today, the company is rebuilding and is still seeing some success. Analysts are also confident the stock will bounce back. Perhaps a $9B valuation seemed a little extreme back in 2014.
Last quarter, LendingClub generated \$330M in revenue, a 61% increase from last year. The company is profitable and seems to be going in the right direction. Don’t count them out just yet.
Final Thoughts: Upstart Stock
To conclude, Upstart is a fintech company trying to change how consumers judge their creditworthiness. The company built an AI that determines that, thanks to various factors.
The credit score we know today was built by FICO over 50 years ago and maybe a little outdated. Companies such as Upstart and LendingClub want to give consumers who don’t qualify a chance to get a loan.
However, the rate can sometimes be astronomical (over 30%). To some, it is worth the risk. Upstart, FICO, and LendingClub are all public companies. Upstart and LC have seen difficulties since going public due to macro events and doubts in their credit model.
On the other hand, FICO isn’t too far away from its all-time high stock price. The company is doing great and expanding into more countries while fighting for some patents for its model. Investing in high-risk growth stocks (Upstart or LendingClub) or an established old stock such as FICO is your choice.
Frequently Asked Questions
Upstart stock does not pay dividends at this time. If you're looking for dividend stocks, there are many others that do.
This could change at any time depending on news, the health of the company, or investor's outlook. However, it is currently seen as a sell.
Currently, Janus Investment Fund owns the most $UPST stock. They have a 17.6% holding in the company which equals to around 14,970,390.00 shares.