From 2017 to 2021, Upstart grew at a frenetic pace of 70%, before higher interest rates, funding constraints and higher defaults led to a massive decline in revenue.
Upstart was supposed to be an agnostic “Fintech” marketplace without credit exposure, but they made the mistake of taking auto loans on their books, which completely negated the buying/bullish case.
Upstart has boosted its capital but even at its latest earnings call, management stated Upstart’s ability to approve borrowers is constrained due to a macroeconomic environment of low consumer savings and high credit default rates.
Right now revenue growth forecasts are low and there are no clear indications of a turnaround – sure lower interest rates and better participation from banks and other financial institutions could be tailwinds in the second half.
Interestingly, while researching this one, I looked at Sofi Technologies (SOFI) and Pagaya (PGY), which are in much better shape, much more resilient and could be winners. Pagaya has executed well in the high interest rate downturn. Both are on the riskier side, and I will update later today.