Is This Fintech Stock Finally Turning the Corner on Profitability?
Key Points
Upstart struggled as rising interest rates throttled its originated loans.
But its business is growing again as interest rates decline, and its stock still looks cheap.
- 10 stocks we like better than Upstart ›
Upstart (NASDAQ: UPST), a rapidly growing AI-powered online lending marketplace, saw its stock close at a record high of $390 on Oct. 15, 2021, marking a near-20-bagger gain from its IPO less than a year earlier. But today, its stock trades at about $26.
Upstart lost its luster as rising interest rates throttled its loan volume, compressed its valuation, and cast a harsh light on its steep losses. Yet after three consecutive years of losses, it became profitable again in 2025. So is Upstart turning a corner and becoming a hot stock again?
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Image source: Getty Images.
Has Upstart turned a corner?
Upstart's AI-powered platform lists and approves loans for banks, credit unions, and auto dealerships. It doesn't offer any of its own loans; it merely acts as a middleman that helps those partners gain more customers. Instead of analyzing traditional data like an applicant's FICO score, credit history, or annual income, it crunches non-traditional data points -- including previous jobs, standardized test scores, and GPAs -- to approve a broader range of loans for younger and lower-income applicants with limited credit histories.
Upstart generates most of its revenue through referral fees, which it charges its partners as a percentage of each approved loan. This business model flourishes when interest rates are low, but flounders when rates rise, making loans less appealing. Low interest rates, stimulus checks, and surging interest in AI-powered fintech platforms lit a fire under its business in 2021, but its growth sputtered in 2022 and 2023 as the Fed raised rates 11 times in a row.
|
Metric |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|---|---|---|---|---|---|---|
|
Originated Loans Growth (YOY) |
40% |
338% |
(5%) |
(59%) |
28% |
115% |
|
Contribution Margin |
46% |
50% |
49% |
63% |
60% |
56% |
|
Revenue Growth (YOY) |
42% |
264% |
(1%) |
(39%) |
24% |
64% |
Data source: Upstart. YOY = Year-over-year.
But after the Fed slashed its rates six consecutive times in 2024 and 2025, Upstart's top-line growth accelerated again as its contribution margin (the percentage of fees retained as revenue) stabilized. Its conversion rate (the ratio of inquiries that lead to approved loans) also increased from 15.1% in 2024 to 19.4% in 2025.
As its core business grew again, it automated more processes with AI, scaled its auto and home loan segments, and reined in its spending. That's why it turned profitable again in 2025.
Is it the right time to buy Upstart's stock?
From 2025 to 2028, analysts expect Upstart's revenue and EPS to grow at CAGRs of 31% and 92%, respectively, as it gains even more customers. Its recent application for a U.S. bank charter also suggests it could expand into a diversified direct bank like SoFi.
With an enterprise value of $3.3 billion, Upstart still looks historically cheap at two times this year's sales. Therefore, it could be a great idea to buy its stock -- which is still down more than 40% year-to-date -- before more investors notice its long-term growth potential.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool recommends Fair Isaac. The Motley Fool has a disclosure policy.
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