Upstart Stock Soars After Q2 Earnings: $635B Auto Lending Opportunity?

Upstart Holdings Inc UPST shares gained 20% on Wednesday after the company reported a second-quarter earnings beat and issued strong guidance for the third quarter.

On Tuesday, Upstart reported second-quarter adjusted EPS of 62 cents on $193.9 million in revenue. Both numbers exceeded analyst expectations of 25 cents and $157.7 million, respectively. Revenue was up 1,018% from a year ago.

Upstart said its bank partners originated 286,864 loans totaling $2.8 billion on its platform in the quarter, a 1,605% increase from a year ago.

The conversion on rate requests during the quarter was 24%, up from 9% in the second quarter of 2020.

Looking ahead, Upstart guided for full fiscal year revenue of about $750 million, ahead of its previous guidance of $600 million and analyst estimates of around $601 million.

In the third quarter, Upstart is forecasting between $205 million and $215 million in revenue, exceeding analyst estimates of $161 million.

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The Auto Loan Opportunity: On Wednesday, Bank of America analyst Nat Schindler said he is bullish on Upstart’s market share gains and long-term opportunity in auto loans.

“Mgmt. disclosed that over $1bn of vehicles have been sold through the Prodigy platform in Q2’21 which we view as one step closer to making material headway in Upstart’s expansion into the adjacent TAM of Auto loans (~$635bn vs. personal loan at ~$84bn),” the analyst wrote.

Schindler said Upstart’s valuation has significant upside given the company’s better-than-expected growth, its profitability and its progress toward expanding its total addressable market.

Bank of America has a Buy rating on Upstart and raised its price target from $135 to $200. 

Upstart's Differentiated Model: Piper Sandler analyst Arvind Ramnani said Prodigy is making impressive progress given more than $1 billion in vehicle sales and financing already available in 47 states.

“The company has continued to drive improvements across its core underwriting capabilities (higher approval rates & greater accuracy), marketing engine (greater ROI on incremental spend), and partnership network (reduced cost of funding) which is enabling flywheel benefits to Upstart's growth trajectory,” the analyst wrote.

He said Upstart’s artificial intelligence modeling, asset-light growth model and expanding TAM make the stock a great long-term investment.

Piper Sandler has an Overweight rating and lifted its price target from $152 to $191.

Photo: courtesy of Upstart.