3 Things You Need to Know If You Buy Upstart Stock Today

Upstart Holdings, Inc. (UPST) has been making waves in the fintech industry with its AI-driven lending platform. As an investor considering buying UPST stock today, here are three key aspects you should be aware of:

1. Volatile Revenue Growth and Profitability: UPST's revenue growth and profitability have been volatile in recent years. In 2023, revenue decreased by -35.72% to $548.46 million, and losses were -$240.13 million, 121.0% more than in 2022. This contrasts with the fintech industry's average growth rate of 20% in 2023. UPST's profitability, measured by EBITDA margin, was -23.74% in 2023, compared to the industry average of 15%. It's crucial to understand these fluctuations when evaluating UPST's financial performance.

2. Debt Levels and Interest Coverage: UPST's debt levels and interest coverage are essential factors to consider. As of the latest data, UPST has a Debt/Equity ratio of 1.75, indicating a relatively high level of debt compared to its equity. Additionally, its Debt/FCF ratio is 10.23, suggesting that the company's free cash flow is not sufficient to cover its debt obligations. Furthermore, UPST's interest coverage ratio is -3.36, which means that its earnings are not enough to cover its interest expenses. These metrics suggest that UPST may be at risk of financial distress if its earnings or cash flow deteriorate. However, it's important to note that UPST's high debt levels may also indicate its aggressive growth strategy, and its ability to manage and reduce its debt levels will be key to its long-term success.

3. AI Lending Models and Risks: UPST's AI lending models have significantly contributed to its financial performance. In 2023, despite a revenue decrease of -35.72% to $548.46 million, the company achieved positive adjusted EBITDA in Q3 2024, driven by improved demand for personal and auto loans. However, these models also pose risks. The company's AI models rely on historical data, which may not accurately predict future creditworthiness, leading to potential mispricing of risk. Additionally, regulatory changes or shifts in consumer behavior could impact the models' effectiveness. As an investor, it's essential to be aware of these risks and monitor the company's progress in mitigating them.

In conclusion, investing in UPST stock today requires a thorough understanding of the company's volatile revenue growth and profitability, debt levels and interest coverage, and the risks associated with its AI lending models. By considering these factors, investors can make informed decisions about their investments in the fintech industry.