Upstart vs. LendingClub: Which Fintech Stock is a Better Buy?

: UPST | Upstart Holdings, Inc. News, Ratings, and Charts

UPST – Today I will analyze and compare Upstart Holdings (UPST) and LendingClub (LC) to determine which fintech stock is currently the better investment.

Over the past few years, the fintech industry has witnessed massive growth amid digitalization tailwinds caused by the COVID-19 pandemic. The global fintech market is projected to grow at a CAGR of 23.4%, hitting $324 billion by 2026, Market Data Forecast reports. High investment in technology-based solutions should drive the industry’s growth during the forecast period. 

However, the fintech industry underperformed the broader market in 2021, as evidenced by the 15.71% loss in the Global X FinTech Thematic ETF (FINX), compared to SPDR S&P 500 Trust ETF (SPY) 29% gains. 

In this article, I will analyze and compare two fintech stocks: Upstart Holdings, Inc. (UPST) and LendingClub Corporation (LC), to determine which one is currently the better investment. UPST utilizes its AI-based lending platform to connect borrowers with its AI-enabled bank partners. LC operates a digital lending marketplace that grants borrowers different types of loans, including unsecured personal loans, super-prime consumer loans, and others. Over the past six months, shares of UPST have advanced 12.7%, while LC stock has increased about 46% over the same period.

Recent Developments

On December 9th, Upstart Holdings’ stock plunged about 5% after Morgan Stanley had issued an Equal-weight rating with a $200 price target. The firm believes that future growth prospects are already reflected in UPST’s share price. Morgan Stanley analyst James Faucette said, “Strong credit performance of recent securitization vintages, along with broadly supportive funding conditions, have allowed UPST’s relationship with investors to flourish, fueling growth.” 

Recent Quarterly Performance & Analysts’ Estimates

Despite reporting higher-than-expected top and bottom line and increased guidance on November 9th, Upstart stock tanked down over 20% in after-hours trading. In Q3, UPST’s revenue increased 249.53% year-over-year to $228.45 million, topping Wall Street’s consensus by $13.12 million. The lion’s share of Upstart’s revenues made up for revenue from fees. Its revenue from fees was up 234.74% year-over-year to $210.42 million in the third quarter, driven primarily by higher revenue from platform and referral fees.  

The company’s income from operations came in at $28.6 million for the quarter, representing a 134.43% year-over-year improvement. As a result, its Non-GAAP EPS has been reported at $0.60, beating analysts’ estimates by $0.27.  

When it comes to Upstart’s revised guidance, the company sees its fourth-quarter revenue and net income in the range of $255-265 million and $16-20 million, respectively. Wall Street expects UPST’s EPS to grow 625.76% YoY to $0.51 in Q4. Also, its top line is expected to grow 203.12% YoY to $262.84 million. 

For its fiscal third quarter ended September 30th, 2021, LendingClub’s total revenue increased 229.6% year-over-year to $246.2 million, surpassing Wall Street estimates by $24.24 million. The increase in revenue was primarily driven by a 219.5% rise in marketplace revenue. Besides, the company’s net interest revenue grew 77.16% year over year to $82.86 million. 

In Q3, the company’s net income came in at $27.19 million versus a year-ago loss of $34.33 million, leading to higher-than-expected GAAP EPS of $0.26 (beat by $0.14). The company also boosted its guidance, planning to generate revenues of $240 to $250 million in Q4 and $796 to $806 million in FY21.

For the fourth quarter, the analysts expect LendingClub’s EPS to stand at $0.22 compared to its year-ago figure of ($0.24). Additionally, a $245.7 million average revenue estimate for the next quarter indicates a 223.70% growth. 

Comparing Valuations

In terms of Forward P/E, LC presently trades at 166.87x, which is substantially higher than UPST, whose multiple is 69.96x. However, both fintech companies look overvalued compared to the sector’s median of 11.56x. When it comes to the Forward EV/EBITDA multiple, UPST’s EV/EBITDA multiple of 59.01x is 280.96% higher than LC’s 15.49x. 

In addition, Upstart is projected to deliver impressive YoY Revenue and EBITDA growth of 187.56% and 447.28%, respectively. These numbers are well above LendingClub’s respective figures of (2.19%) and 23.96%, respectively. For me, this argument could somewhat justify UPST’s premium valuations.

The Bottom Line 

In my opinion, UPST is a better investment than LC at current levels. Upstart’s recent quarterly figures look slightly better. In addition, UPST’s forward growth rates could neutralize selling pressure caused by rich valuation metrics. Finally, the post-earnings sell-off and consequent downtrend allow contrarian investors to scoop shares of this high-growth company on the dip. 


UPST shares were trading at $134.54 per share on Wednesday morning, down $2.04 (-1.49%). Year-to-date, UPST has declined -11.08%, versus a 0.48% rise in the benchmark S&P 500 index during the same period.


About the Author: Oleksandr Pylypenko


Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist. More...


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