Upstart Holdings ($UPST (-0,91 %) ) is a company that uses artificial intelligence to revolutionize lending. After a rapid rise during the low-interest phase, the share price plummeted as interest rates rose. But with a possible interest rate cut in 2025, the tide could turn again. Is Upstart ready for a comeback? 🚀

Overview: What does Upstart do?

Upstart is an AI-powered FinTech company that evaluates loans differently than traditional banks:

✅ AI-supported lending: Instead of relying solely on credit scores, Upstart uses artificial intelligence and over 1,600 variables to better assess credit risks.

✅ Partnership with banks: Upstart does not grant loans itself, but brokers them to banks and credit institutions. As a result, the company does not bear any default risk of its own.

✅ Automated processes: Over 80 % of loans are approved fully automatically, saving banks time and money.

The business model is based on the fact that banks can grant more loans with Upstart technology without increasing the risk.

Competition: Who are the competitors?

🔸 SoFi Technologies ($SOFI (-0,41 %)
SOFI) - Also a growing FinTech with a strong focus on loans and banking.

🔸 LendingClub ($LC (-0,27 %)
) - Similar model, but with a stronger focus on peer-to-peer lending.

🔸 Affirm ($AFRM (-1,1 %)
) - Competition in the "Buy Now, Pay Later" sector, offering real-time lending.

🔸 Traditional banks - Large banks such as JPMorgan or Wells Fargo offer their own lending solutions and could put Upstart under pressure in the long term.

Opportunities: Why could Upstart take off again?

✅ Possible interest rate environment in 2025: Upstart has suffered greatly from high interest rates. If the US Federal Reserve lowers interest rates in 2025, demand for credit could rise again.

✅ AI advantage: Upstart's technology could help banks make more accurate lending decisions - especially in an environment where traditional credit ratings are often too rigid.

✅ Expansion into new lending areas: Upstart is expanding its model beyond traditional consumer loans to include car loans and mortgages. This could open up new growth opportunities.

✅ Partnerships with banks: Upstart already works with over 100 banks The more institutions use the platform, the larger the network becomes.

✅ Automation and efficiency: The company has cut costs significantly in recent quarters, which could improve profitability in the long term.

Risks: What could continue to weigh on Upstart?

⚠️ Interest rate risk: If interest rates remain high or continue to rise, demand for credit could remain weak.

⚠️ Regulatory risks: AI-supported lending is under scrutiny - new regulations could affect the business model.

⚠️ Confidence problem at banks: After recent weak quarters, some banks are reluctant to use Upstart loans. The company needs to prove its model again.

⚠️ Competitive pressure: Large banks and other FinTechs could develop their own AI models and take market share away from Upstart.

⚠️ High volatility: The share has shown strong fluctuations in the past. Investors must expect high volatility.

Conclusion: Turnaround or AI FinTech in crisis?

Upstart is an exciting company with an innovative idea that could revolutionize traditional lending. But after the massive fall in its share price, the company first has to prove itself again. If interest rates fall and banks start lending more again, Upstart could be one of the biggest winners.

What do you think? Is Upstart ready for a comeback or is it still a risky bet? 🚀

Goodbye poor.

Outlook meh. Chart meh

Money may go into $AFRM (-1,1 %)

Affirm Q3 2024 $AFRM (-1,1 %)

Financial performance:

• Revenue: Affirm reported revenue of $698 million for the first quarter, an impressive 41% increase year-over-year. Revenue to GMV (total number of merchandise sales) ratio increased to 9.2% compared to 8.8% in Q1 2024, indicating improved pricing and efficiency in monetizing GMV.
• Net income (loss): Affirm posted a net loss of $100 million for the quarter, but this is an improvement of $72 million year-over-year. Despite the loss, the decrease in the deficit shows a trend towards greater financial stability.
• Adjusted operating income: Adjusted operating income increased by USD 70 million to USD 130 million, representing an adjusted operating margin of 19%, compared to 12% in the first quarter of 2024.

Balance sheet overview:

• Loans held for investment: Loans held for investment increased 39% year over year, a major contributor to the increase in interest income.
• Provision for losses: This amounted to USD 351 million, representing 5.7% of loans held, and shows that Affirm is adjusting its provision for loan losses in line with its growth strategy and market development.

Income details:

• Operating income (loss): Operating income improved by $77 million to a loss of $133 million, compared to a loss of $209 million in the prior year. This improvement reflects better cost efficiency and successful cost management.
• Revenue less transaction costs (RLTC): RLTC grew by 34% year-on-year to USD 285 million, representing 3.8% of GMV and indicating solid profitability of the operating businesses.

Cash flow overview:

No specific details on cash flow have been provided in these reports.

Key ratios and profitability metrics:

• Operating margin: Operating margin improved significantly to (19%) from (42%) in Q1 2024, indicating a significant reduction in operating losses.
• Adjusted operating margin: Adjusted operating margin increased to 19% from 12% in the prior year, reflecting improved operating efficiency.

Competitive position:

Affirm recorded competitive delinquency rates on loans over 30 days compared to other consumer lenders. This demonstrates a strong position in managing credit risk and supports confidence in Affirm's risk management practices.

Forecasts and management commentary:

• Outlook for FY2025: Affirm expects GMV to exceed $34 billion and expects an adjusted operating margin of at least 20%. Fourth quarter 2025 target includes achieving GAAP operating margin, underscoring profitability target.
• Profitability target: Affirm plans to be GAAP operating income positive by the fourth quarter of 2025, supporting its long-term profitability strategy.

Risks and opportunities:

• Risks: Risks include securing financing, managing credit risk, and the potential impact of macroeconomic conditions and interest rate fluctuations.
• Opportunities: Affirm sees opportunities in the expansion into new markets and product lines, although these are not expected to make a significant contribution to growth in the 2025 financial year.

Summary of results:

Positives:

Sales growth: Sales increased by 41% compared to the previous year, showing strong business expansion.

Improved operating profit: Operating profit improved by USD 77 million, highlighting efficiency in cost management.

Increased adjusted operating margin: Margin increased to 19%, providing Affirm with a healthier financial position.

Successful pricing strategy: Pricing initiatives resulted in higher interest income and improved monetization.

Competitive credit quality: Lower default rates positively differentiate Affirm from other lenders.

Negative aspects:

Net deficit: Despite improvements, Affirm remained in deficit with a net loss of $100 million.

High operating expenses: The cost of corporate guarantees and share-based payments weighed on the result.

Increased provisions: Provisions increased due to higher loan origination and timing of loan sales.

Low growth due to new initiatives: Product launches and market expansions are not expected to make a significant contribution to growth in the 2025 financial year.

Economic risks: Potential impact from economic uncertainties and interest rate changes could affect demand and profit margins.