Upstart Holdings (NASDAQ: UPST) stock lost 42% of its value in the first six months of 2024, according to data provided by S&P Global Market Intelligence. It continues to lose business and report losses, and investors don't see this ending any time soon.
No end in sight for Upstart's problems
Upstart has an artificial intelligence (AI)-driven lending platform that it claims can assess creditworthiness more accurately than the traditional credit score. However, in the high-interest-rate environment, the company's business is drying up.
In some ways, it's been worse because Upstart's performance when money was flowing was so fantastic. Investors had built up their expectations for this tech disruptor, so the stock has fallen that much harder.
Sales have fallen off a cliff, and earnings have become losses. It's been almost three years since the beginning of the descent and seems like investors are losing patience for the chance of a rebound. Declines are stabilizing, and Upstart reported a 24% sales increase year over year in the 2024 first quarter. However, the company is guiding for a decline in the second quarter and still reporting massive losses.
There are also indications from Upstart's competitors that their businesses haven't been hit as hard. That makes me wonder why Upstart is feeling the heat more than similar companies.
It's not all bad. Upstart is demonstrating some wins and launching new and improved products. It's still adding partners to its platform, such as credit unions using its technology to identify good borrowing candidates and auto retailers providing car loans. It's also rolling out its first home equity product, a home equity line of credit (HELOC), which is now live in 20 regions.
The bulls are petering out
The premise for Upstart's business still stands. It will likely bounce back under improved interest-rate conditions and offer lenders a better way to assess credit. But it may not begin to demonstrate real results for a while.
The Federal Reserve has already pushed off its initial plans to bring down rates. Even if it begins lowering them, which could be as early as September, it's going to take time to reach Upstart's business.
Longer term, the more data Upstart has, which includes the good times and the ugly times, the better its platform will be, and the better position it will be in to withstand challenges. But there's risk until it gets there.
Upstart stock has historically been volatile and could respond to good news with a quick increase. I recommend that investors wait for sustained positive results before investing in the company's stock.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
