The Upstart Holdings lending platform is at low. Will the company be able to return to growth?

Upstart Holdings Inc. (UPST), a provider of a borrower creditworthiness assessment platform, is trading 80% below 52-week highs. At the auction on April 26, the UPST share was worth $75.49. Some investors have concerns that the current inflation may become a serious obstacle for the credit business. Other investors, on the contrary, believe that Upstart Holdings has a bright future ahead.

Upstart Holdings offers a platform for assessing the creditworthiness of borrowers. Her method with the use of artificial intelligence elements helps sometimes to more accurately and quickly determine the risks associated with issuing loans. It is noteworthy that the Upstart Holdings platform, using about 1,600 variables for risk assessment, could approve more loans at lower interest rates for borrowers than traditional valuation methods did .

However, loans issued with the help of Upstart Holdings show the same levels of losses as with standard credit and risk assessment systems. According to the US Consumer Financial Protection Bureau, Upstart Holdings models approved 27% more loans than top traditional models. This made it possible to get 2.7 times more permits without increasing unprofitability.

Thanks to such figures, Upstart Holdings is in demand in the banking environment, and its revenue increased fourfold last year to $849 million expect this figure to reach $1.4 billion this year. According to the forecast of Wall Street analysts, by 2026, Upstart Holdings’ revenue will grow almost two and a half times to $3.4 billion. Let’s add to this that the company has been profitable since 2020. A new growth driver for Upstart Holdings may be the entry into the market of car loans and mortgages, where the amounts are much higher.

For a company that receives a commission for issuing a loan, this can be a catalyst for revenue growth. However, there are significant risks for Upstart Holdings. One of them is a poorly diversified customer base. Currently, about 90% of the company’s revenue comes from just two banks, with Cross River Bank alone accounting for 56% of revenue.

Almost all the proceeds are commissions for issuing loans. However, rising rates can dramatically reduce the number of loan applications. Thus, on the one hand, the company enters new markets and expands its intelligent software. But the macroeconomic situation and dependence on several large clients create serious risks for Upstart Holdings, which can cause stock volatility.