Upstart’s Curious Case

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Now, Upstart, this lending contraption, had a bit of a tumble in February, didn’t it? A proper plop, shedding a good 30.6% of its value, according to those number-crunching chaps at S&P Global Market Intelligence. It’s a peculiar thing, this business of lending money, and Upstart, with its fancy algorithms, is trying to make a meal of it.

The quarterly reports, at first glance, were rather jolly – all smiles and shiny numbers. But lurking beneath the surface, a rather nasty little suspicion began to wiggle its way into the brains of the investors. It seems their new lending doodads might not be quite as profitable as they’d hoped. And then, as if things weren’t messy enough, the Head Honcho, Dave Girouard, decided to hand over the reins to his co-founder, Paul Gu. A perfectly sensible move, perhaps, but it gave the market jitters, like a sudden sneeze in a quiet library.

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Loan Originations – A Right Proper Surge

In the last quarter, Upstart was churning out loans like a particularly industrious sausage machine – a 35.2% jump in revenue, bringing the total to $296.1 million. They even managed a little profit, a mere $0.17 per share, which is a vast improvement over losing money, wouldn’t you agree? Both numbers, you see, gave the analysts a pleasant surprise.

The management, those clever beans, predicted even more revenue in the years to come – a whopping $1.4 billion by 2026. Wall Street, those rather pessimistic sorts, had only guessed $1.27 billion. A grand prediction, indeed, but predictions, as we all know, are about as reliable as a chocolate teapot.

The initial reaction to these earnings was quite positive, a little cheer went up, but then, rather suddenly, everything went a bit wobbly. Why? Well, a couple of reasons, I suspect. The CEO switch, though seemingly smooth, always makes people fidget. Gu, being the younger of the two, is like a fresh sprout compared to Girouard’s… well, let’s just say he’s seen a few winters. A natural hand-off, perhaps, but the market doesn’t always appreciate “natural.”

But the real gremlin in the works, I believe, is something called the “take rate.” You see, Upstart doesn’t actually hold onto these loans. They’re more like a matchmaker, finding borrowers for those with deeper pockets. And those pockets, it seems, aren’t quite as generous as they used to be. While they’re still buying the loans, they’re offering less money for each one. More loans being issued, yes, but each one bringing in a smaller slice of the pie. A bit like trying to fill a bathtub with a leaky tap.

The company is forecasting strong growth, but also a slight dip in those all-important profit margins. Now, usually, as a business grows, those margins should get fatter, not thinner. It’s like a balloon inflating – more air goes in, the balloon gets bigger, and the skin gets stretched tighter. But this… this is a bit like squeezing the balloon instead.

Working Harder for the Same Crumbs?

It appears investors are worried that Upstart is relying too heavily on these large institutional buyers, who are driving down the price of each loan. More volume, yes, but less profit per loan. It’s a bit like a factory churning out endless widgets, only to sell them for pennies each.

Now, as long as Upstart can keep selling those loans, it shouldn’t matter too much. But the company is still finding its feet, still wobbling between profit and loss. It’s difficult to predict what things will look like a couple of years down the line.

The stock could certainly take off if the economy holds steady and interest rates come down. But at 63 times its past earnings and 29.5 times its future estimates, it’s a rather risky proposition, even after February’s tumble. A bit like betting your entire fortune on a particularly wobbly rocking horse.

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2026-03-06 16:53