Upstart Holdings Stock: Red Hot Fintech Company Disrupting the Lending Industry

Every once in a while, a company like Upstart Holdings (NASDAQ:UPST) comes along and completely catches the market off-guard with an unexpectedly strong earnings report. This can result in institutional investors acquiring shares at a rapid rate and driving the share price up quickly. This is most likely what occurred with Upstart Holdings, which saw its share price increase by over 171% in the three trading days following its recent earnings release on March 17th. While the stock gave back a good portion of that move during Tuesday’s trading session, the company’s meteoric rise has certainly been impressive and commands attention.

This is certainly an interesting fintech company with an innovative business model, but is it too late to get in? While you might be taken aback by this stock’s wild moves over the last few trading sessions, it never hurts to learn about a new company that is seeing heavy buying. That’s why we are going to take a deeper look at Upstart Holdings below and provide some details about the potential for the stock going forward.

Leading Artificial Intelligence Lending Platform

If you’ve ever tried to get a loan the traditional way, you probably already understand some of the shortfalls of the process and how frustrating it can be to deal with large financial institutions. That’s why Upstart Holdings is such an interesting and potentially disruptive business. Instead of using credit-score-based lending models, Upstart’s platform leverages sophisticated machine learning models to more accurately identify risk and approve more applicants than traditional models.

By combining artificial intelligence and large amounts of data, Upstart can collaborate with banks and financial institutions to get money to its clients quickly, conveniently, and with the possibility for lower interest rates. The technology benefits both banks and financial institutions by providing higher approval rates and lower loss rates, while consumers should be attracted to the platform thanks to its faster loans and lower interest rates. Some of the stats that stand out here include the fact that 99% of applicants get money just 1 business day after accepting their loans and that the company saw its bank partners originate 300,379 loans across its platform in 2020, up 40% year-over-year.

Strong Q4 Earnings Report and Guidance

As we alluded to earlier in the article, Upstart Holdings recently reported strong Q4 earnings that included Q4 diluted earnings per share of $0.07, over 3 times what the analysts were expecting. Q4 revenue increased by 39% year-over-year to $86.7 million while Q4 adjusted EBITDA came in at $15.5 million, up 123% year-over-year. Upstart Holdings executed at a high level throughout 2020, given that the company increased 2020 revenue by 42% year-over-year to $233.4 million. Perhaps the biggest number that stands out from this company’s 2020 fiscal year was the fact that adjusted EBITDA totaled $31.5 million, which represents a 463% year-over-year increase.

This was the company’s first earnings release since going public, which is perhaps one of the big reasons why there was a rush to add exposure after the impressive results. It seems that the company’s management is ready for another big year, as Upstart expects 2021 revenue of approximately $500 million, which would be an increase of 114% from 2020’s impressive performance. The strong earnings report and forward guidance here absolutely makes this company one to watch going forward.

Acquisition of Prodigy Software a Positive

Along with the company’s striking earnings results, there was another bit of positive news released last week that should not be overlooked by investors. Upstart Holdings announced that it has entered into a definitive agreement to acquire Prodigy Software Inc., which is a provider of cloud-based automotive retail software. Prodigy is the first end-to-end sales software that connects dealerships and car shoppers digitally. More and more people are going online for major purchases like automobiles, which means software like this can help dealerships modernize their sales channels and develop e-commerce platforms.

This is big news because it will allow Upstart to start offering loan services for automobiles, which is a massive market. Consider the fact that roughly $1 trillion worth of cars are sold in the U.S. each year, with most of them financed. The bottom line here is that this acquisition is a strong move that could help to drive Upstart’s growth for years to come.

Final Thoughts

It’s safe to say that Upstart Holdings has a very attractive business model and could be a company that disrupts the entire lending industry. Combine that with the impressive earnings growth and strong forward guidance and this stock is one that investors should consider adding once the price settles down. Just be careful about chasing the stock up here after such a big move.