Upstart (UPST), the AI-powered lending platform, is making headlines today as its stock has surged by more than 40% following a strong Q3 earnings report. The company exceeded both top-line and bottom-line expectations, highlighting solid loan growth and a positive outlook for the future. But what does this mean for investors? Should you buy, hold, or sell Upstart stock? Let’s dive in and break down the results, the stock surge, and expert opinions.
Upstart’s Q3 Earnings Beat Expectations
Upstart Holdings Inc. reported impressive results for the third quarter of 2024, sending its stock price skyrocketing. Here’s a quick summary of the earnings:
- Revenue: Upstart’s revenue grew by a solid 20.5% year-over-year, hitting $162.1 million, driven by a 30% increase in transaction volume.
- Transaction Volume: The company facilitated $1.6 billion in loans, marking a significant growth in its lending operations.
- Net Loss: Despite the strong revenue growth, Upstart posted a net loss of 6 cents per share, a slight increase from the 5-cent loss per share in Q3 of 2023.
A Strong Comeback for Upstart
Upstart’s CEO, Dave Girouard, expressed his optimism following the release of the earnings report:
“With 43% sequential growth in lending volume and a return to positive adjusted EBITDA, we continue to strengthen Upstart’s position as the fintech leader in artificial intelligence. Even without a significant boost from the macroeconomy, we’re back in growth mode.”
This performance exceeded Wall Street’s expectations, where analysts had forecasted $150.2 million in revenue and a net loss of 15 cents per share, according to Yahoo Finance. Upstart’s sequential growth is especially noteworthy, with the company reporting a 43% increase in lending volume quarter-over-quarter, highlighting a strong rebound from previous setbacks.
Upstart’s Promising Outlook for Q4
The outlook for Upstart stock in Q4 is even brighter. The company expects to generate approximately $180 million in revenue for the fourth quarter, comfortably exceeding the $162.3 million analysts had predicted. Girouard shared an optimistic perspective, stating:
“We’re hopeful that we’ll see macroeconomic wins in the quarters to come, but we’re not waiting around for them. Upstart’s mission is simply to improve access to credit, and our strategies to accomplish this goal are to provide the best rates and best process to everybody.”
This forecast positions Upstart for significant growth in the near future, and investors are reacting positively to the guidance, driving the stock price up. But what does this all mean for investors? Let’s break it down.
Why Is Upstart Stock Up 40% Today?
The 40% jump in Upstart’s stock is no accident. It’s a direct result of the company surpassing both revenue and earnings expectations. Investors love to see a company grow its revenue while controlling costs and narrowing losses. For Upstart, the key factors behind the surge include:
- Stronger-than-expected earnings: Beating analyst forecasts on both the top and bottom lines boosts investor confidence.
- Sequential growth in lending volume: A 43% growth in lending volume in the third quarter is a strong indicator that Upstart’s business is expanding.
- Positive forward guidance: Upstart’s revenue forecast for Q4 exceeded Wall Street’s expectations, adding to its appeal.
- Return to positive adjusted EBITDA: The company returned to profitability in its core operations, a strong sign of financial health moving forward.
Is Upstart Stock a Buy, Hold, or Sell?
With the recent rally, Upstart is now up 95% for the year, but this doesn’t necessarily mean it’s all clear skies ahead. Here’s what you need to know before making a decision:
Wall Street’s Perspective: Mixed Sentiment
While the stock has soared, Wall Street remains somewhat cautious. S&P Global Market Intelligence reports that analysts have an average target price of $40.19 for UPST, which is significantly lower than the current trading price of nearly $80. The consensus recommendation is “Hold”.
In other words, while Upstart’s growth trajectory is promising, many analysts think that the stock might be overvalued at its current levels, especially given the volatility in the broader fintech sector and the potential challenges facing the macroeconomy.
Analysts Weigh In
One financial services firm, Needham, has issued a Hold rating on Upstart, noting that while the company’s growth potential is strong, it may be too early to fully commit to an aggressive buy. Needham analyst Kyle Peterson said:
“While we are constructive on Upstart’s growth trajectory, we believe that it is still relatively early on in the days of a growth recovery. We expect opportunities for growth investors to add UPST to their portfolios in the event of a pullback or if there’s more clarity about future revenue estimates.”
This sentiment suggests that Upstart’s stock may continue to rise in the short term, but it’s not yet a slam dunk investment for long-term holders.
What Investors Should Watch Next
For investors thinking about buying Upstart stock, keep an eye on these key indicators:
- Q4 Earnings Results: If Upstart continues to outperform in the fourth quarter, it could lead to another stock surge.
- Macroeconomic Factors: The company is hopeful for tailwinds from a better economic environment, but continued challenges (e.g., inflation or interest rate hikes) could dampen growth.
- Profitability Metrics: While Upstart returned to positive adjusted EBITDA, sustained profitability will be key to long-term growth.
Ultimately, Upstart’s ability to continue growing its loan volume and improving its profitability will determine whether this stock has more room to run or if it will plateau.
Conclusion: The Future of Upstart Stock
Upstart’s impressive earnings beat and bullish Q4 outlook have sent its stock price soaring, but investors should be cautious as the stock trades near $80. Wall Street remains somewhat cautious, with analysts issuing Hold ratings and an average target price far below the current level.
For those looking to invest in Upstart, it may make sense to wait for a pullback or more clarity on its long-term growth potential. However, for those already in, holding through the volatility could be a solid bet if the company’s momentum continues.
