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Upstart: Fintech Started Too Hot

Apr. 09, 2021 5:50 AM ETUpstart Holdings, Inc. (UPST)AFRM, GS, LC, PYPL35 Comments


  • Upstart has risen over 500% since their IPO price at $20.
  • The fintech quickly rushed a secondary to sell another 2.3 million shares.
  • The AI credit decision platform will go through a period of substantial reported growth this year due to easy comps from COVID-19.
  • The stock already trades at over 20x '21 sales estimates.
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Upstart Holdings (NASDAQ:UPST) had a very successful IPO boosted by a strong Q4 earnings report. The fintech focused on utilizing artificial intelligence to improve their lending platform has seen the stock soar from the IPO pricing at only $20. Investors should beware of the historical casualties of other hot fintech IPOs before rushing into Upstart at anywhere close to 500% above the IPO price.

Image Source: Upstart website

Too Hot

Upstart has been so hot since the IPO that the company already rushed out a secondary offering. The company plans to sell 2 million shares with an over-allotment of an additional 300,000 shares.

If not for the selling pressure following this follow-on offering, the stock was trading above $140 for 600% gains since the IPO. The fintech only priced the IPO back on December 15 for $20 with a total of 10.8 million shares sold. Upstart sold 6.0 million of those shares for gross proceeds of just $120 million. The secondary offering should gross more than $250 million from selling far fewer shares.

The AI credit decision platform provides consumers looking for loans access to AI-enabled bank partners. The company obtains vastly all revenues from fees from banks for facilitating loans or servicing those loans with limited credit exposure from just $98 million worth of loans at year-end. The highly automated, all-digital platform provides for higher approval rates and lower APRs by utilizing AI to better find quality borrowers.

Sure, the fintech beat Q4 analyst estimates, but the newly public company didn't have much of a basis for analyst estimates due in part to COVID-19 impacts during 2020. The company only grew revenues by 39% in the quarter to reach just $86.7 million, yet the stock has a fully diluted market cap of $11.6 billion based on a share count of 92.4 million forecast for

Data by YCharts

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

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Analyst’s Disclosure: I am/we are long LC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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