Upstart Holdings UPST is slated to report first-quarter 2025 results on May 6, after market close.

The company expects revenues of approximately $200 million for the quarter. The Zacks Consensus Estimate is currently pegged at $200.7 million, suggesting an improvement of 57.1% year over year.

The consensus mark for earnings is pegged at 19 cents per share, indicating a robust turnaround from the year-ago quarter’s loss of 31 cents per share. The consensus mark for the bottom line has remained unchanged over the past 60 days.

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UPST’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 188%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Earnings Whispers for Upstart

Our proven model does not conclusively predict an earnings beat for Upstart this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Though UPST carries a Zacks Rank #3, it has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Factors Likely to Influence Upstart’s Q1 Results

Upstart’s first-quarter performance is likely to have gained from its strategy to operate as a multiproduct company. Innovative product launches like the Upstart Macro Index and features like Parallel Timing Curve Calibration and Recognized Customer Personalization to promote improved data-driven decisions among lenders are likely to have favored the company’s performance.

UPST’s expertise in offering unsecured loans, especially when traditional banks are cautious amid the ongoing macroeconomic uncertainties, is likely to have contributed to its customer base growth. The Federal Reserve’s three rate cuts in 2024 are likely to have benefited the company’s first-quarter performance.

Upstart’s ongoing efforts to automate the unsecured loan process might have contributed positively to the to-be-reported quarter. It is also expected to have gained from multiple partnerships with banks and credit unions.

Amid the ongoing macroeconomic headwinds, Upstart is cutting costs by reducing its workforce. This measure is likely to have aided UPST in counterbalancing the protracted high inflationary conditions that are negatively impacting transaction volume growth on the Upstart platform.

However, headwinds from the weakening lending market due to elevated consumer risk caused by multiple bank failures and the dislocation of capital markets might have affected Upstart’s revenues in the first quarter. The volatility in the macro environment, caused by macroeconomic uncertainties and geopolitical tension, is also expected to have hurt UPST’s performance.

Upstart’s Price Performance & Valuation

Upstart shares have surged 103.4% over the past year, outperforming the Zacks Financial – Miscellaneous Services industry’s decline of 0.1%.

Compared with other traditional lenders, Upstart stock has outperformed SoFi Technologies SOFI, Enova International ENVA and LendingClub LC. Shares of SoFi Technologies, Enova International and LendingClub have risen 79%, 48.9% and 4.7%, respectively.

One-Year Price Return Performance

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Let us now look at the value Upstart offers to its investors at current levels. UPST is currently trading at a premium with a forward 12-month price-to-sales (P/S) of 4.09X compared with the industry’s 3.3X, indicating a stretched valuation.

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Its competitors, SoFi Technologies, LendingClub and Enova International, have a forward 12-month P/S of 4.02X, 1.14X and 0.74X, respectively.

Investment Thesis for Upstart Stock

Upstart’s business model thrives in a low-interest-rate environment. By using AI to assess borrower creditworthiness, the company provides faster loan approvals, making it an attractive alternative to traditional lenders.

The Federal Reserve’s three rate cuts in 2024 have already fueled a recovery for Upstart, reversing some of the damage from previous rate hikes that had cut its annual revenue run rate in half. With more cuts expected in 2025, borrowing costs should decline further, stimulating loan demand and revenue growth.

The company has also made strides in diversifying its funding sources and securing institutional partnerships that reduce its dependency on holding loans on its balance sheet. Upstart's innovations in personal and auto loan segments, combined with its strategic investments in new loan products, hold promise for future growth.

Conclusion: Hold Upstart Stock for Now

Upstart Holdings’ AI-powered innovation, improving macro backdrop and expanding loan offerings position it well for future growth. However, its high valuation makes it vulnerable to short-term volatility. For now, holding the stock is the smartest approach.

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LendingClub Corporation (LC) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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