© Reuters. Double finishes in a short time: can the rally continue?
Upstart (NASDAQ 🙂 is a fintech company that’s gaining a lot of interest lately.
Upstart is focused on using artificial intelligence (AI) to streamline the lending space, improving outdated credit scoring technology that has pushed qualified borrowers out of the market.
So far, the business has focused on unsecured personal loans. However, Upstart is entering the auto loan and mortgage market.
Long-term investors seem to be enjoying Upstart’s growth, which has been impressive of late. Since its IPO, UPST shares have exploded. I am bullish on the stock.
Can this continue? Let’s discuss. (See Upstart stock charts on TipRanks)
Huge market opportunity
The US loan market has traditionally relied on FICO scores to determine a borrower’s eligibility for the loan. Upstart uses AI and big data solutions to capture a more holistic view of a borrower’s actual ability to repay a loan.
This allows for better approval rates for loans, more borrowing for lenders, and a reduction for Upstart.
The company’s existing personal loan business represents a total market opportunity estimated at approximately $ 84 billion. However, Upstart’s announced entry into the auto loan business may presently provide $ 635 billion in additional market opportunities.
These markets are also growing rapidly, resulting in impressive growth expectations among investors.
Ahead of the competition
Upstart’s AI and database give the company a unique advantage over its competitors.
Among the factors that investors consider with Upstart is the company’s treasure trove of borrower data. Apparently Upstart collects 1,600 details for each of its applicants, which is significantly higher than the 20 metrics considered in the FICO dashboard.
The company then compares the data collected to 10.5 million repayment events. It creates a specific AI model that allows the company to calculate the credit risk for each applicant.
A report from the Consumer Financial Protection Bureau indicates that Upstart’s AI model has increased approval rates by 27%. In addition, this model significantly lowered average interest rates by 16%. The new AI model was found to be five times more accurate and effective in predicting credit risk than that of the conventional framework.
With more loans coming from the Upstart platform, the company is collecting more data. This allows the AI model to be more efficient, thereby increasing approval rates and loan applications. Upstart only had 10 banking partners as of September 2020, which has grown to 25 banks and credit unions this year.
There is a risk involved
Upstart is a relatively new player in the automated lending market. Cross River Bank is one of its main banking partners, which accounted for nearly 63% of its turnover last year. This implies that if the business loses that primary customer, it could be in trouble.
Additionally, around 52% of Upstart’s web traffic comes from Credit Karma. Without a doubt, it is very dependent on this partnership for transparent operations.
As a result, until Upstart diversifies its client portfolio, some investors may remain wary.
What are analysts saying about UPST?
According to the TipRanks analyst rating consensus, UPST stock is a strong buy. Out of six reviews, there are six buy recommendations.
The UPST average price target is $ 207. Analysts’ stock price targets range from a low of $ 147 per share to a high of $ 300 per share.
Upstart has a market capitalization of $ 21.6 billion. However, the company’s AI model and focus on big data has given Upstart an edge over the competition. Banking partners associated with Upstart recorded $ 2.8 billion in loans through its platform in the second quarter.
On the back of encouraging second quarter results, Upstart raised its revenue forecast to $ 750 million from $ 600 million. If this momentum continues as announced, UPST action is certainly ready to continue on this trajectory.
Disclosure: At the time of publication, Chris MacDonald does not have a position in any of the titles mentioned in this article
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