Cloud base artificial intelligence (AI) lending platform Upstart Holdings (NASDAQ: UPST) stock has taken a terrifying (-75%) drop from its $401.89 highs before attempting to bounce. The sell-off in the benchmark indexes combined with monetary tightening and the Russian invasion of Ukraine triggered a perfect storm sell-off in shares despite the 400 million share buyback announced in its blowout Q4 2021 earning release. AI lending is being ushered into the forefront as Upstart indicated a 280% top line growth in the recent quarter driven by strong consumer demand in loans. The Company is expecting to launch small business loans in 2022 and mortgage financing products in 2023. While fundamentals are demonstrating hypergrowth, valuation was arguably too lofty in the $400s. The Company is continuing to grow despite the bearish market climate and geopolitical uncertainty. Prudent investors looking to get some exposure in a leading AI-based lending platform can watch for opportunistic pullbacks in shares of Upstart Holdings.

Fiscal Q4 2021 Earnings Release

On Feb. 15, 2021, Upstart released its fiscal fourth-quarter 2021 results for the quarter ended December 2021. The Company reported earnings-per-share (EPS) profit of $0.89 versus $0.51 consensus analyst estimates, a $0.38 beat. Revenues grew 251.8% year-over-year (YoY) to $305 million, beating analyst estimates for $262.85 million. Bank partners originated 495,205 loans for a total of $4.1 billion, up 301% YoY. The conversion on rate requests was 24%, up 17% YoY. Upstart Holdings CEO David Girouard commented, “With triple-digit growth and record profits, Q4 was an exceptional finish to a breakout year for Upstart. 2021 will be remembered as the year AI lending came to the forefront, kicking off the most impactful transformation of credit in decades. But AI lending isn’t a one-category phenomenon. I’m also happy to report that, with help from an epic push by our team in the last few weeks of the year, auto loan originations on our platform are now ramping quickly and will provide growth opportunities to Upstart for years to come.”

Upside Guidance 

Upstart raised fiscal Q1 2022 revenues to come in between $295 million to $305 million versus $258.30 million. Contribution margin is expected around 46% and adjust net income between $50 million to $52 million. The Company sees fiscal full-year 2022 revenues to come in around $1.40 billion versus $1.21 billion consensus analyst estimates with 45% contribution margin and adjusted EBITDA around 17%. The Company announced a 400 million share stock buyback program.

Conference Call Takeaways

CEO Girouard set the tone, “Let me state upfront that we’re in a multi-decade mission to put affordable credit within reach of every American. The price of credit is the price of opportunity and the price of mobility. And we want to ensure that opportunity and mobility are available to all Americans, particularly for those whom the financial system has failed in the past.” He stated that despite inflation, Omicron, and market rotation out of momentum stocks, business continues to grow stronger, and the future has never been brighter. He pointed out that 2021 was a banner year and its profits are “neither marginal nor ephemeral”. The Company generated more cash in 2021 then it had burned in its eight years of existence. These profits were reinvested back into the Company as evidenced by the doubling of its headcount in areas of product, engineering, and machine learning. The Company has seven lenders with no minimum FICO score requirement. The Company expects to generate $1.5 billion in auto loans in 2022 and expects to have small dollar and small business lending products available in 2022 with mortgage lending availability in 2023. The Company has no plans to become a bank, rather strives to be a consumer internet brand focused on finance and a technology partner to financial institutions. Upstart is not a lender but a technology provider to the industry concluding, “So we expect our growth in transaction volumes to vary considerably from quarter-to-quarter. But at the same time, we represent a secular change that we believe is both inevitable and durable. Our core thesis is that over a period of years, AI lending will rapidly gain market share over legacy approaches to credit and Upstart is in the pole position to benefit from that. In fact, economic volatility, such as we’ve seen in the last two years only serves to demonstrate the value of a modern AI-enabled approach to credit origination.”

UPST Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for UPST stock. The weekly rifle chart coiled off $75.15 and peaked near the $155.92 Fibonacci (fib) level.  The weekly rifle chart is in a make or break as the 5-period moving average (MA) slows up at $111.92 towards the 15-period MA at $137.85. The weekly 50-period MA sits at $174.43.The weekly stochastic is coiling towards the 20-band. The weekly market structure low (MSL) buy triggered above $120.75. The daily rifle chart uptrend is stalling with a falling 5-period MA at $126.08 and rising 15-period MA at $116.31. The daily 50-period MA overlaps with the weekly MSL trigger at $120.88. The daily make or break will resolve in either a pup breakout or stochastic mini inverse pup. The daily upper Bollinger Bands (BBs) sit at $153.84 and lower daily BBs sit near the $73.14 fib. Prudent investors can monitor for opportunistic pullback levels at the $121.17 fib, $113.24, $105 fib, $101.80, $95.61 fib, $87.37 fib, $80.58, and the $73.53 fib. Upside trajectories range from the $182 up towards the $228.44 fib level.