Chart of the Week: Upstart Earnings Provide Rare Good News for Growth Stocks

February 18, 2022

It’s not been a good few months for growth investors. That’s because rising interest rates and higher inflation have seen a violent sell-off in high-growth technology names that are primarily valued on future cash flows.

Some of the darlings of investors during the depths of the Covid-19 pandemic have now seen a rapid reversal in their share prices.

Meanwhile, when it comes to earnings, there has been no forgiveness from the markets for companies that have either missed expectations or guided for weaker future growth.

However, one exception to this case has been Upstart Holdings Inc (NASDAQ: UPST), an online lending platform driven by artificial intelligence (AI).

Massive growth runway for loans

Upstart had a phenomenal 2021, with its shares up nearly 300% during the year. However, at one point, if you had bought shares at the beginning of last year you would have had a 10-bagger – in less than nine months – on your hands.

In its latest quarter, Upstart absolutely smashed expectations but, more importantly, also guided for a very strong quarter that was well ahead of consensus expectations.

During the quarter, Upstart raked in US$305 million in fourth-quarter revenue, up 252% year-on-year. Meanwhile, it’s one of those rare breed of tech stocks; profitable.

Upstart’s net income for the period was US$58.9 million, up a whopping 5,639% year-on-year.

Given Upstart’s business model – which focuses on making it easier for consumers to access credit via bank’s channels at lower rates – the number of loans originated (and the value of those loans) that have used its software has been climbing (see below).

Striking up new partnerships with banks, its key clients, has allowed it to keep growing in new verticals. More recently, Upstart has moved into auto financing, a key market in the US.

With Upstart shares soaring 30% after earnings, but still down nearly 60% from its all-time high, this latest earnings report is a timely reminder to investors that some growth businesses continue to perform extremely well.

Upstart loans Q4 2021

Source: Upstart Holdings Q4 2021 earnings presentation

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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