Upstart Gears Up to Report Q4 Earnings: Buy, Sell or Hold the Stock?

Core Viewpoint - Upstart Holdings (UPST) is expected to report its fourth-quarter 2024 results on February 11, with anticipated revenues of approximately $185 million, reflecting a year-over-year increase of 28.3% [1][2]. Financial Performance - The Zacks Consensus Estimate for revenues is currently at $180.1 million, while the consensus for earnings is a loss of 5 cents per share, which is an improvement from the previous year's loss of 11 cents [2]. - Upstart has consistently beaten the Zacks Consensus Estimate in the last four quarters, with an average surprise of 39.7% [3]. Earnings Expectations - Upstart carries a Zacks Rank 3 (Hold) and has an Earnings ESP of -20.00%, indicating that the model does not predict an earnings beat this time [4][5]. Strategic Developments - The company's fourth-quarter performance is likely to benefit from its strategy as a multiproduct company, including innovative product launches and features aimed at improving data-driven decisions among lenders [6]. - Upstart's expertise in unsecured loans has contributed to customer base growth, particularly as traditional banks remain cautious amid macroeconomic uncertainties [7]. - The company has been automating the unsecured loan process and forming partnerships with various banks and credit unions, which may positively impact its performance [8]. Cost Management - In response to macroeconomic headwinds, Upstart is reducing its workforce to cut costs, which may help mitigate the effects of high inflation on transaction volumes [9]. Market Conditions - The weakening lending market, driven by elevated consumer risk and global geopolitical tensions, may negatively impact Upstart's revenues [10]. Stock Performance - Upstart shares have increased by 100.4% over the past year, outperforming the Zacks Financial – Miscellaneous Services industry's growth of 25.9% and the Financial Select Sector SPDR Fund (XLF) ETF's gain of 32.1% [11]. - The stock is currently trading at a forward 12-month price-to-sales (P/S) ratio of 7.51X, significantly higher than the industry's 2.93X, indicating a stretched valuation [13]. Investment Outlook - Upstart's business model benefits from a low-interest-rate environment, utilizing AI for faster loan approvals, making it an attractive alternative to traditional lenders [16]. - The Federal Reserve's rate cuts in 2024 are expected to stimulate loan demand and revenue growth, reversing some previous losses [17]. - The company is diversifying its funding sources and expanding its loan offerings, which may support future growth [18]. - Despite positive growth prospects, the high valuation makes the stock vulnerable to short-term volatility, leading to a recommendation to hold the stock for now [19].