Shares Of Fintech Lender Upstart Jump 47% On First Day Of Trading – Forbes

Shares of Upstart, a Silicon Valley fintech company that makes personal loans to consumers, rose 47% on its first day of trading, giving it a market value of $2.2 billion. Its last valuation as a private company was $750 million, established when it raised funding in April 2019, according to PitchBook. 

Founded by former Google GOOG executives Dave Girouard and Anna Counselman and data scientist Paul Gu, Upstart makes loans of $1,000 to $50,000 at interest rates ranging from 7% to 36%. Their customers use the money for everything from credit card debt consolidation to financing weddings. To assess how risky borrowers are, Upstart uses A.I. and alternative data like education and employment history. 

In March, as the coronavirus spread across the U.S., the outlook for fintech lenders looked grim. Forbes wrote about the big challenges Upstart was bound to face, including investors’ unwillingness to fund new loans and the possibility of their customers missing loan payments. Upstart makes most of its loans to people with below-average credit scores, according to an early 2020 report from bond-rating agency Kroll. “It was a scary time,” says Upstart CEO Dave Girouard. 

Some of those monsters materialized—Upstart’s revenue fell 73% in the second quarter of 2020 compared with the first quarter, as the funding market froze up and Upstart hit the brakes on issuing new loans. But as the government stimulus hit consumers’ bank accounts and unemployment plateaued, the American consumer fared much better than expected, and the lending ecosystem came back to life. 

In the third quarter of 2020, Upstart processed 81,000 loans, a 26% increase from the year prior. Its customers were more resilient than that of the average online lender, with 5.6% of them either missing or deferring a loan payment, compared with an industry average of 11.4%. Girouard says that’s thanks to his A.I.-based lending model, which uses “dramatically more data” than other lenders. He adds, “Common logic is that lending is lending. You can be a little better at it or a little worse, and technology doesn’t change that … But that’s wrong. When you apply technology in the form of A.I., you can dramatically improve the outcome.”

Other pure-play fintech lenders have struggled this year. Shares of GreenSky, LendingClub LC , Elevate and Oportun are down 55%, 30%, 25% and 8%, respectively, since mid-February when the pandemic started dragging down financial markets. 

In the nine months ending in September 2020, Upstart’s revenue was $144 million—growing 46% from the year prior—and it turned a net profit of $5 million. In 2019, revenue grew 80% compared with 2018, and the company broke even. 

Upstart’s next focus is auto loans. It recently started making car loans in Florida and plans to roll them out to the rest of the country in 2021. Girouard says, “We see at least as much inefficiency in auto lending as we have seen in personal lending. Millions of people spend far too much for car loans.”

Read More…