Upstart Stock (NASDAQ:UPST)
Upstart stock (NASDAQ:UPST) was down 5% as of 12:09 PM ET on Friday. Upstart Holdings is a fintech lending platform.
Despite the lack of company-specific news, the reduction is presumably the result of two external factors: the higher loan loss reserves taken by other significant banks during this earnings season and the persistent rise in Treasury bond rates.
What’s the Reason?
Similar banking stocks, such as Silicon Valley Bank and American Express, also announced profits for the third quarter today. Upstart stock price probably fell in sympathy. Since Silicon Valley Bank primarily serves the technological and start-up industries, which have seen their values fall and financial activity grind to a stop, the bank’s stock dropped by almost 20%. American Express, however, posted profits above estimates despite a 90% sequential rise in the provision for credit losses.
Since Upstart is also a technology-enabled lending platform, its stock price probably fell when that of Silicon Valley Bank did since the two firms may be traded in the same group by many asset managers. Meanwhile, investors may be worried about Upstart stock, which often works with less creditworthy customers, if premier consumer-oriented banking institutions like American Express are bracing their portfolios for probable loan losses in the next year.
Also, the Federal Reserve keeps hiking rates and selling off more Treasury and mortgage assets because inflation is stubbornly high. This might provide a significant challenge for Upstart, whose lending business is dependent on external finance. Loan purchasers may start pulling back and demanding a higher rate if interest rates rise rapidly across the board.
Upstart experienced this problem earlier this year when it had to reduce its loan originations and keep certain loans on its own balance sheet. The stock price has dropped dramatically this year. Much blame may be placed on uncertainty about the company’s business plan.
So What Happens Now?
Upstart is still a fintech company to keep an eye on this season and will report results on November 8. The Upstart stock price is dropped over 95% from its all-time high this year. Therefore, improving its current situation may be a prime prospect for substantial gains.
This once-growth company is now trading at barely 14 times profit projections for next year. But if a recession were to occur, that profits forecast would be severely impacted. Upstart’s business plan is to leverage AI and other technological underwriting to provide loans for consumer goods like cars and trucks to people who may be more creditworthy than their FICO score would imply.
That seems like a hazardous bet given the uptick in charge-offs this year due to the rising cost of basics like housing, food, and petrol. Upstart is still a high-risk company compared to safer financials because of concerns about the credit and financing of its platform. However, suppose inflation is controlled, and leadership finds a more reliable and sustainable source of money. In that case, the Upstart stock price might climb significantly again.
Upstart stock investors keen on learning more about these topics should keep an eye out for the earnings report and conference call scheduled for November 8.
Featured Image- Megapixl @ Rafaelhenriquepress
Author Shariq Khan 
