Here We Go Again: Why Upstart Investors Should Tread Carefully

Core Viewpoint - Upstart Holdings reported strong third-quarter results, leading to a 53% increase in stock price, but caution is advised as the stock remains volatile and significantly below its previous highs [1][2][9]. Financial Performance - Revenue for the third quarter increased by 20% year over year, reaching $162 million, surpassing guidance of $150 million [3]. - Adjusted loss per share was $0.06, better than Wall Street's expectation of $0.15, and the net loss improved to $6.8 million from $40.3 million the previous year [4]. - Adjusted EBITDA turned positive, with management expecting continued growth in this area [4]. Operational Improvements - Management attributed the positive results to internal system improvements rather than low interest rates, which only began to take effect at the end of the quarter [5]. - Upstart has upgraded its machine learning systems, resulting in efficiency improvements and cost savings [5]. Market Position and Growth - The company added 24 new lending partners in the current year and is experiencing growth in auto loans, which increased by 46% year over year [6]. - Upstart's new home equity line of credit (HELOC) product has originated 600 loans without defaults, covering 55% of the population [7]. Economic Context - The economic environment is becoming more favorable for Upstart, with expectations of lower interest rates and a strong job market [10]. - Despite the recent stock surge, Upstart's stock is still 80% below its all-time highs, indicating significant volatility [9]. Investment Considerations - Upstart stock is considered high-risk, with a price-to-sales ratio of 12, which is elevated compared to faster-growing companies [11]. - Analysts are divided on the stock, with about a third rating it as a sell at current prices [11].