Upstart, a lending technology company, has emerged as a strong performer in the stock market, with its shares increasing by 236% over the past year. Despite posting a series of impressive earnings over the past three quarters, the company’s valuation, approximately 12 times its sales, may appear costly to some investors. However, the robust recent performance is complemented by significant future opportunities.
Upstart’s Potential Market Opportunity
Upstart’s platform has facilitated the origination of billions of dollars in loans, but the potential market is considerably larger than what the company has achieved to date. A breakdown of loan types and market sizes reveals the scope of Upstart’s future growth potential. For personal loans, the annual market volume is $155 billion, with Upstart capturing 5.3% through its $8.2 billion annualized volume. The auto loans market stands at $677 billion annually, but Upstart has captured less than 0.03% with $172 million in annualized volume. The small-business loans market, with an annual volume of $895 billion, is yet to be tapped by Upstart. Lastly, for home loans, the market size is $1.4 trillion annually, with Upstart capturing less than 0.008% at $108 million in annualized volume.
The home loan opportunity, in particular, could be substantially larger than currently perceived. The $1.4 trillion figure represents loan volume from a recent year. With the real estate market experiencing a prolonged slowdown and high-interest rates deterring homeowners from leveraging their home equity, an estimated $35 trillion in homeowner equity exists in the United States. Should interest rates decline significantly, this could significantly boost Upstart’s home equity line of credit (HELOC) business.
In conclusion, while Upstart may appear to be an expensive stock, trading at about 12 times sales, this valuation is justified by its extensive growth potential. The company is not only poised for substantial market opportunities but also exhibits accelerating growth rates and profitability. Upstart expects to achieve profitability on a GAAP basis in 2025, marking the first occurrence since 2021, and management forecasts the company’s first $1 billion revenue year.
Matt Frankel, a contributor, holds positions in Upstart and includes options such as short December 2025 $95 calls on the company. The Motley Fool also holds positions in and recommends Upstart. Further details can be found in The Motley Fool’s disclosure policy.
