Upstart Holdings, a leading AI-powered lending marketplace, is showing promising signs of recovery after facing significant challenges in the wake of rising interest rates. The company, which experienced a meteoric rise in its stock price followed by a steep decline, has recently released its financial results for the second quarter of 2024, indicating a positive trajectory.
Upstart has been utilizing artificial intelligence for over a decade to revolutionize the lending industry. Unlike traditional credit scoring systems such as Fair Isaac’s FICO, which rely on a limited number of data points, Upstart’s algorithm considers over 1,600 variables to assess creditworthiness. This approach has resulted in higher loan approval rates and lower interest rates for borrowers.
During the second quarter, Upstart’s AI models approved 91% of loan applications without any human intervention, leading to a threefold increase in the conversion rate for automated deals. The company’s revenue, although experiencing a decline since its peak in early 2022, appears to be stabilizing, with a projected 11% increase in the upcoming third quarter.
One of the concerns raised by investors was Upstart’s reliance on its own balance sheet to fund loans, which goes against its intended role as an originator. However, the company has addressed this issue by adding new credit partners and seeing the return of institutional partners. These developments indicate that funds are flowing back into Upstart as it continues to demonstrate its ability to generate quality loans.
With the addition of two new credit partners, Ares Management and Centerbridge Partners, and the launch of a home equity line of credit (HELOC) product, Upstart is well-positioned to capture a larger share of the $831 billion annual originations market for personal and automotive loans. Furthermore, the company’s relatively low price-to-sales ratio suggests that its stock may be undervalued, making it an attractive long-term investment opportunity.