The online consumer lender Upstart Holdings says it's making progress in landing long-term funding commitments — an effort aimed at reducing recent volatility that led to two rounds of layoffs.
Last year, banks and other buyers of Upstart's consumer loans pulled back on those purchases as interest rates rose and worries over the economy grew.
Upstart executives have
Those partnerships would mark progress after what Girouard described as a "challenging year" for the San Mateo, California-based Upstart, which uses artificial intelligence models to make loans to borrowers with lower credit scores.
With fewer banks, credit unions and other investment firms buying its loans, Upstart pulled back on lending, and its revenues from loan sales fell sharply. Upstart said last month it was
The company's struggles last year "laid bare some parts of our business that we needed to improve," Girouard said during Tuesday's quarterly earnings call.
Upstart's current funding model, in which investors decide to buy its loans on a month-to-month basis rather than making longer commitments, might look "beautiful on a whiteboard," he said. "But in reality, we need to have volume more locked in and secured."
Sanjay Datta, Upstart's chief financial officer, said the company hopes to share some "concrete news" soon about longer-term partnerships. It has already received "formal expressions of interest" from some potential partners, he said.
Upstart reported roughly $147 million of revenues during the fourth quarter of 2022, down sharply from the $305 million it reported a year earlier. It recorded a net loss of $55.3 million, compared with net income of $58.9 million in the fourth quarter of 2021.
"It is our intention to return to profitability as soon as possible," Girouard said, noting that Upstart had been profitable for most of the time since it went public in December 2020.
Progress on long-term partnerships is a positive development since those arrangements may "drive a more consistent and reliable source of funding," Wedbush Securities analyst David Chiaverini wrote in a note to clients.
The downside is that the partnerships might offer discounts to loan buyers that make more purchases, which could "result in materially reduced economics to Upstart," he added.
The recent round of layoffs should help Upstart return to profitability, Chiaverini wrote. But Wedbush's models suggest the company may not be profitable "for another couple years," he wrote.
Upstart's stock price was up 25.58% to $21.16 per share in midafternoon trading Wednesday. Its stock has fallen dramatically since their peak of $390 in October 2021, when "meme stock" investors helped fuel a spike in its stock price.
Girouard touted several technology improvements that he said have made Upstart a "much better company than we were a year ago." The firm's underwriting models have become more accurate and are able to "separate risk significantly better than a traditional FICO-based model," Girouard said.
The company has also developed an index to better track how economic shifts are affecting credit conditions. The index will give loan buyers "real-time insight into the financial health of the American consumer," letting banks and credit unions adjust their appetite for Upstart loans as they see fit.
Upstart now has 92 lenders on its platform, up from 42 a year earlier. Girouard said new lenders are "starting cautiously with us," but their presence means Upstart could ramp up its lending "once there's a bit more clarity on the direction of the economy."
