IG News: Upstart Stock Drops 35% in a Month, But Prospects Remain Alluring

Upstart is losing ground as CEO Dave Girouard sells 133,000 shares. Despite the tightening monetary environment, long-term economic prospects look optimistic.

Since its initial public offering in December 2020, Upstart's (NASDAQ: UPST) share price has been on a roller coaster ride. It began at $20 and rose to $390 by October 15, 2021, before plummeting 73 percent to $104 today.

Rising inflation and interest rates, the Omicron variation, and the cost-of-living crunch might all be impacting the AI FinTech stock.

The new financing is causing a surge in the price of a startup stock.

A FICO score is the US version of a UK consumer credit score, and it is calculated using data from the three main credit reference agencies - Experian, Equifax, and TransUnion. This score is used by 95 percent of US financial institutions to establish creditworthiness.

In addition, FICO, like the UK, employs conventional factors like income, current credit use, and any defaults on file. Upstart, on the other hand, contends that FICO ratings are based on insufficient information that does not appropriately estimate applicant risk.

Its AI technology, in addition to standard criteria, incorporates information such as job history, financial transactions, and education to make more sophisticated judgment decisions. It then connects qualified borrowers with its banking partners, who in most instances provide rapid approval based on Upstart's findings.

Upstart says that its platform lowers the risk for lending institutions while expanding consumer credit availability. The startup claims that by lending to trustworthy people who are more fully analyzed via its platform, its lender partners lose less money to high-risk consumers with unreliably high FICO scores and gain more money.

According to internal business statistics, US banks are losing out on potential earnings from up to one-third of the population due to an overreliance on the FICO model. And, with Upstart's AI constantly updated with repayment data, it's growing more adept at determining creditworthiness.

Upstart stocks: the future has arrived

2021 full-year revenue increased by a whopping 264 percent year on year to $849 million, with fee income accounting for $801 million of the total. This is a 15-fold increase since 2017. CEO Dave Girouard boasts that the firm “made more cash in 2021 than we burnt in our whole eight-plus years as a private company.”

In 2021, Upstart's bank partners originated 1.3 million loans for $11.8 billion, a 338 percent increase. Furthermore, conversion on rate requests increased to 24 percent, up from 15 percent in 2020.

'Auto Retail usage among vehicle dealers expanded over 4X1 in 2021 owing to its unique mix of in-store customization for dealers and online access for consumers,' according to FinTech's push into the auto lending sector.

The number of dealership partners increased from 111 at the end of 2020 to 410 in 2021. It has also created a mobile-first vehicle platform and currently anticipates a $1.5 billion auto transaction volume in 2022.

Upstart's present income is mostly generated from personal loans, a sector having a total addressable market (TAM) of $96 billion in 2021. The TAM for auto loans is $727 billion. 'Auto Refi funnel performance is now equivalent to where our loan funnel was in 2019,' says Girouard.

There are, of course, headwinds. Last month, CFO Sanjay Datta proposed a $400 million share repurchase program, claiming that recent volatility had created 'excellent purchasing circumstances.' In January, Girouard sold 137,498 company shares. Both of these factors might indicate that the Upstart share price recovery will take time.

In addition, 17 US states approved new legislation targeted at regulating AI in 2017. The National Institute of Standards and Technology in the United States is now investigating federal standards for the embryonic industry. Upstart's algorithm necessitates access to a degree of personal information that many may consider being a violation of the basic right to privacy.

However, Girouard claims that “Upstart is currently around the size that Google was when I joined that business in early 2004.” So I've watched this movie before, and I'm hoping to use what I learned there to help Upstart become the most influential FinTech in the world.'

He expects sales to increase to $1.4 billion this year. In comparison, competitor FICO reported $1.32 billion in sales in 2021 and expects it to rise to $1.35 billion in 2022.

Girouard thinks that 'AI financing will quickly acquire market dominance over traditional credit techniques, and Upstart will profit greatly.' Of course, Upstart stock is pricey by conventional measures, with a price-to-earnings ratio of 73.

However, its potential remains intriguing.

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