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How the Upstart share price is disrupting the lending industry

The Upstart [UPST] share price is up a staggering 1,367.3% from its $20 IPO price.  After closing at $293.46 on 20 September, the Upstart share price has gained 620.2% in the year-to-date and 50% in the past month. Shares in the AI lending marketplace had hit a 52-week high of $308.78 during intraday trading on 17 September and it doesn’t look like the run will end any time soon.

To put the Upstart share price into context, competitor SoFi Technologies [SOFI], which completed its merger with a Chamath Palihapitiya-backed special purpose acquisition company on 1 June, is up 5.4% in the past month. The Global X Fintech ETF [FINX] has risen by 2.4% in the same period, while the Financial Select Sector SPDR Fund [XLF] is down 2.4%.  

 

 

Upstart share price benefits from profitability

For the second-quarter, Upstart, which was founded in 2012 by Dave Girouard (pictured), reported revenue of $194m, up 60% on the previous quarter. Revenue had been $17m in the year-ago period, but the company stated in its S-1 prospectus that this was mainly down to the economy shutting down, lower consumer spending and bank partners halting loan applications.

June was the first month that Upstart topped 100,000 loans and $1bn in loan application volume on its platform. The company also delivered record profits for the three-month period, with adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) of $59.5m and generally accepted accounting principles (GAAP) net income of $37.3m.

For three months to the end of September, Upstart is expecting revenue to fall between $205m and $215m, with the midpoint representing a 221% growth year-on-year. Net income is expected to be between $18m and $22m, with an adjusted EBITDA of $30m to $34m.

For the full year, revenue has been revised from the $600m guidance provided in its first-quarter 2021 earnings call to $750m, which would be a 221% year-on-year growth rate. Adjusted EBITDA is projected to rise by 17%, up from the 10% indicated on the earnings call.

“For companies of this scale to even double annually requires being in the right place at the right time with the right team, and often means a hefty infusion of capital to acquire new customers. The most successful tech companies of all time never saw growth rates in the quadruple digits while public” - Ari Levy

 

The fact that Upstart is already reporting a profit so early into its life as a public company is impressive. As CNBC puts it, the numbers are mind-blowing.

“For companies of this scale to even double annually requires being in the right place at the right time with the right team, and often means a hefty infusion of capital to acquire new customers. The most successful tech companies of all time never saw growth rates in the quadruple digits while public,” Ari Levy, a technology reporter for the publication, wrote.

Eric Jackson, a tech investor and president of EMJ Capital, told CNBC that Upstart is “the best of the bunch” within the financial technology theme. He prefers it to the likes of Coinbase [COIN] and Square [SQ].

 

Room to grow in expanding customer base

The company’s stellar growth and profitability are unlikely to let up any time soon. It has only just scratched the surface in terms of customer penetration. In a note to clients seen by Seeking Alpha, Atlantic Equities analyst Simon Clinch said it has only penetrated 1.3% of the market. He expects this to increase to 6% by FY2030. This will mean an annual growth rate of 22% over the next decade or so. Upstart is in “the early stages of a long secular growth opportunity”.

Clinch initiated his coverage with an overweight rating and a price target for the Upstart share price of $290, which implies downside from its 20 September closing price.

JMP Securities analyst Ronald Josey raised his target for the Upstart share price on 17 September from $205 to $327, implying an upside of 7.8%. He reiterated an outperform rating for the stock.

Despite being less than a year into its life as a public company, there looks to be plenty of room for the Upstart share price to head north from its current level.

With a market cap of $22bn, the Upstart share price is currently trading at 20.5 times its estimated fiscal year 2022 sales of $1.1bn. This makes Upstart relatively cheap compared to other hot AI stocks like Palantir [PLTR], which went public on 30 September last year and is trading at 26.6 times its estimated fiscal year 2022 sales, despite having never reported a profit and not being expected to do so until 2024.

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