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Dec. 16, 2020, 2:55 p.m. EST

Upstart stock soars after IPO

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By Emily Bary

Upstart Holdings Inc. shares shot up more than 30% in afternoon trading Wednesday as the lending company made its public debut.

The stock’s first trade on the Nasdaq was for $26.00 at 12:44 p.m. ET. Upstart /zigman2/quotes/223096209/composite UPST -5.21% had priced its offering late Tuesday at $20 a share , which came at the low end of the company’s expected range. The company raked in $180 million through the offering after it sold 9 million shares.

Other selling shareholders sold about 3 million additional shares.

The company said in its prospectus that when it comes to traditional lending decisions, “most banks use simple, rules-based systems that consider only a limited number of variables,” meaning that “millions of creditworthy individuals are left out of the system, and millions more pay too much to borrow money.” Upstart uses artificial intelligence to make lending decisions and argues that its model, which considers more than 1,600 data points, enables greater loan access at lower rates without adding risk.

Chief Executive Dave Girouard told MarketWatch that those involved in the lending industry have been searching for “a fountain of youth that can change the game in terms of accuracy.” He believes that artificial intelligence and cloud computing can lead to a “transformation across the banking and financial services industries for decades to come.”

Upstart partners with banks by connecting them with customers interested in taking out loans, and then the company collects referral fees from the banks it works with.

Because Upstart doesn’t do the lending itself, the company doesn’t have “the immediate risk of millions of loans on our books,” Girouard said, one reason he said the company’s business is built to weather periods of economic downturns.

He added that the COVID-19 crisis “had no material impact on the returns our bank partners saw on their loans,” which suggests to him that banks using AI lending “can rest comfortably knowing that [the AI] will allow you to lend responsibly because it will respond and react and do the right things faster” than humans could.

Upstart’s model looks at factors like educational and employment history among its data points. Girouard said “we’d hope if the opportunity is as big as we think it can be that it will draw competitors,” but that Upstart has an advantage because it’s been training its model for years, which has allowed the AI to get smarter.

Upstart generated $146.7 million in revenue during the first nine months of 2020, up from $101.6 million in the same period a year earlier. The company recorded net income of $5.0 million during first nine months of the year, after it posted a loss of $6.5 million in the comparable period a year prior.

The offering comes as the Renaissance IPO ETF /zigman2/quotes/207665280/composite IPO -1.56% has gained 110% on the year and as the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.36% has risen 15%.

/zigman2/quotes/223096209/composite
US : U.S.: Nasdaq
$ 104.65
-5.75 -5.21%
Volume: 1.58M
April 16, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$8.38 billion
Rev. per Employee
$421,329
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/zigman2/quotes/207665280/composite
US : U.S.: NYSE Arca
$ 64.79
-1.03 -1.56%
Volume: 341,759
April 16, 2021 4:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,185.47
+15.05 +0.36%
Volume: 2.21B
April 16, 2021 5:15p
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