Why I sold Upstart for good

Like many here, I reduced Upstart after hours on Nov 9 when their disappointing numbers came out. Unlike most, I reduced it to 0% and I haven’t bought any back.

Why was the quarter such a disappointment?

Some of us were expecting Upstart to do $250m (https://discussion.fool.com/upst-current-beliefs-34965083.aspx) or $261m (https://discussion.fool.com/i-posted-my-math-on-my-assumptions-o……and) then there were those like me who actually expected $280m or more. They turned in $228m – but the disappointment did not stop there. If the beat was simply worse than we expected, we could have admitted that we just got carried away, and/or that the huge stock price run to $400 got us overexcited. The thing is, I think Upstart was disappointed with this result.

Here’s the cadence of their FY guidance:
original: 500m
Q1 update: 600m (100m raise)
Q2 update: 750m (150m raise)
Q3 update: 808m (58m raise)

Who does that intentionally? How could that be seen as anything but a disappointment? They trained us to expect huge raises and then they ran into a wall and couldn’t give one.

This highlights several things I don’t want in an investment (Yes, we knew some or all of this, but we were willing to overlook it as long as revenue was exploding…it did not explode in Q3 and we don’t know the future.)

  • Lack of visibility. They are simply unable to know what even the next quarter will look like. They’ve been open about this, explaining that they will be conservative, and sometimes they will beat by a lot if things go well, and sometimes they will beat by less if things don’t.

  • Vulnerability to external forces. Whether fraud attempts, or lower demand for personal loans (or lower amounts), or changes in monetary policy, etc…things they have no control over will have outsized effects on them. Consider Cloudflare or Datadog – in a recession or huge panic like Q2 of last year, they might see a slight slowdown, but Upstart experienced at least a temporary Armageddon – revenue was down 70%+ sequentially in Q2 2020.

  • Because they have almost no recurring revenue, the law of large numbers looms very large. This is what I talked about a year ago with Peloton when it was at $125/share (it’s at…checks notes…$51 now): https://discussion.fool.com/why-i-reduced-pton-again-34660974.as… But Upstart has a huge TAM! you say. Great. They may grow for a long, long time – but that doesn’t mean they can stave off the slow down. Jon estimates they can maybe pull in close to $200m in 2022 from auto (https://discussion.fool.com/what-i-gleaned-from-the-article-upst…). That would be good for just under 25% revenue growth – in other words, they’ll still be dependent on personal loans if they hope to keep growing at 100% or anything close. (I predict they won’t be able to…they might even have to guide sequentially down for Q1. Then for Q2 to approach 100% YoY they would have to do close to $400m for the quarter.)

Sorry, but I just don’t want to be invested in Upstart. Like Peloton still might, Upstart’s brand may become huge someday…but getting there will be difficult and may take longer than most people think. I’m rooting for them, but not with any of my portfolio.

Bear

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Who does that intentionally? How could that be seen as anything but a disappointment? They trained us to expect huge raises and then they ran into a wall and couldn’t give one.

As I heard it, this was the concern behind the very first question on the earnings call, which came from a private investor.

Here was Dave Girouard’s answer:

Our goal is to provide accurate guidance and so for sure, the more we can understand about the out-quarters in our business, the more I would expect us to be reasonably conservative but I’m trying to provide real transparency into what we know and expect about our business. So, I would just attribute that to us having a good sense.

I mean, our business is growing at a phenomenal rate by any measure, being triple-digit. And then some revenue growth while being profitable is quite unique in the FinTech world so we’re quite pleased with that. To the extent we can reasonably predict that in the future, we would view that as a positive.

The mistake I made going into earnings was assuming that the team was playing earnings–intentionally sandbagging guidance so that they could shock the market with their success again and again. Well, lo and behind, the man so earnestly trying to level the playing field in consumer lending is a totally honest broker. No games. No playing earnings calls.

Girouard’s goal is to give accurate guidance, something that gets easier as they grow and learn. Their guidance will be on the conservative side of what they actually expect based on what they know at the time. And he views that honesty as a good thing.

So they weren’t “training us to expect huge raises,” at least not intentionally. Each and every quarter they are giving their honest assessment of what they are seeing.

There are many reasons people might choose to trim or sell or hold or buy more. For myself, I am holding, disappointed that I added pre and not post earnings. But now I know that they are not trying to play with their guidance to thrill the market. The numbers will be on the conservative side of what they truly believe is an accurate range for the next quarter and year. I’m good with that.

JR

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I don’t really understand the issue with guidance raises. Each time fiscal year guidance is issued, it incorporates the beat in the current quarter and is limited by the number of quarters left in the year. So this quarter they beat by $13 million, essentially raising guidance for Q4 by $45 million.

In Q2, they beat by $34 million or so, so the $150 million raise was really just raising guidance for the second half of the year by $116 million.

And it’s not like they took away that previous raise. The $45 million is in addition to the previously raised number.

Maybe the $100 million raise in Q1 was far too low, but at that time COVID was still a much bigger threat.

A guidance raise of $100 million this quarter would have been great, but would only have made sense if they actually turned in $260 million this quarter. It makes sense to be disappointed by the actual report from Q3, but the “light” guidance raise already incorporates the disappointing quarter.

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-I don’t think it makes sense to sell out just because Upstart got better at forecasting their own revenue. I do think it makes sense to trim due to the obvious risks (both macro and executional) and the lumpiness of the revenue.

-I cut back from 22% after earnings to a more reasonable 15%.

-Is it Upstart’s fault the market thought they could keep up the ridiculous forecast raises? It’s like blaming a ball player because you drafted him number 1 and he ends up as an all-star in year 3, instead of year 2. This type of stock takes more patience than SaaS and more long term orientation.

-Upstart is nothing like Peloton. Peloton was a widget-selling COVID play that got killed by gyms reopening and also supply chain costs/constraints.

-My mistake was going over 20% into earnings, which was a bit outside my comfort zone, especially for non-Saas. I was at 24.6% going into earnings. Jonwayne’s google analytic numbers as well as similar analysis from seeking alpha had me and most of the folks around here thinking Q3 would be a much bigger beat.

https://seekingalpha.com/article/4466885-upstart-upst-stock-…

We were wrong but the numbers below and Q4 guidance are quit juicy. Where else are you going to find another company with these kind of numbers, excellent leadership, and a rapidly expanding TAM?

-Revenue of $228 million, up 250% yoy

-Fee revenue of $210 million, up 235% yoy

-Transaction volume of loans originated on the platform up 244%

-Operating income was $28.6 million, up 134%.

-Net Income was $57 million up 367%

-Adj EBITDA was $59 million, up $15.5 million

-Adj EBITDA margin was 26% of revenue, up from 24%.

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Ok, Bear, I’ll take the bait. Now, first, I greatly respect Bear and his opinions. However, I see UPST a bit differently.

OUR EXPECTATIONS WERE VERY HIGH

I went into Q3 earnings with an oversized position and some options bets that would have done very well had the numbers come in as many of us expected. So, yes, our expectations were that UPST would deliver another blowout quarter as it did in Q2. It turns out that our expectations were too lofty. That led to disappointment. But, let’s be clear the disappointment, at least mine, was mainly due to my super high expectations and not related to the actual performance of the business.

REASON FOR HIGH EXPECTATIONS

jonwayne235 has done some amazing analysis on UPST. All that work was backed up by lots and lots of data, and the data, the analysis, and the prediction all made sense to me. So there was a ton of analysis that led me (and many of us) to have big expectations for the Q3 results. Add in what they delivered in Q1 and particularly in Q2 (and the explosion in the stock price), we were set up to have high expectations. I concluded from the analysis (based on the data) that my conviction for the Q3 result was increased, and as a result, I not only temporarily increased my allocation but also placed some moderate (about 2.5% of my portfolio) options bets on the Q3 result. We all know the outcome after earnings.

Lots of research >>> increased conviction >>> increased allocation/bets >>> pain when result doesn’t pan out

It’s a reminder to be careful with the bets and the allocation no matter how much of “a sure thing” we believe is there.

WHY Q3 RESULT WAS LOWER THAN EXPECTED

There were several reasons why UPST’s Q3 result (loans and revenue) was lower than we expected.

  1. Loan sizes dropped. This was outlined in detail by WSM here:
    https://discussion.fool.com/upstart-q4-expectationsguesstimation…

I think a key takeaway is that UPST believes that average loan size will rise again, but they just don’t know when.

  1. Attempted fraud lowered automatic loan approvals. And it inflated the “Upstart login” search numbers which affected jonwayne235’s model linking Google search to number of loans. It seems clear that UPST had to apply resources to deal with the current fraud attempts, and these diverted resources lowered the loan numbers for Q3. The actual fraud had a minimal effect on the business (i.e. negligible amounts of dollars were stolen). Furthermore, these fraud detection/prevention efforts during Q3 should also help to detect and prevent fraud attempts going forward.

UPST IS NOT SaaS

Bear stated that UPST is not SaaS and therefore it’s business model is inferior. Correct that UPST is not SaaS, and perhaps Bear will only invest in companies with a SaaS for all eternity. It’s his portfolio and his prerogative to invest how he chooses. But there are great businesses outside of SaaS, and I argue that UPST is one of them.

UPST MORE LUMPY FROM Q TO Q THAN SaaS

As investors in UPST, we can expect more of the unexpected when it comes to UPST. Q2 was unexpectedly great. A large reason for that great Q2 result was a change in the algorithm which approved a higher percentage of loans. We can’t expect them to have such a superior algorithm every quarter. In Q3, we had continued shrinking of average loan size and resources diverted to deal with fraud; this was another unexpected result. I think we will see more surprises going forward; some will be beneficial for the quarter in question while others will reduce the results for that quarter. It will be virtually impossible to predict these X factors. So if predictability and a lack of volatility in Q to Q results is an absolute requirement for investment then maybe UPST is not for you. With UPST I will look past a great or bad quarter knowing that the company is on track to meeting and exceeding my long run expectations.

WHY I LIKE UPST

So why do I like UPST? As a former product manager, I start with the value proposition. There’s a value proposition for the loan applicant, and there’s a value proposition for the bank partner. For the loan applicant, UPST offers a lower interest rate (primary benefit) with a fast and easy application process (primary differentiator). This value proposition is extremely strong as shown by how quickly UPST has been able to grow loan number. The value proposition for bank partners is also very powerful: for banks/credit unions, UPST’s AI underwriting provides a superior risk model (primary benefit) allowing for lower credit losses and higher margins, all offered as instant, automatic approval process (primary differentiator). The banks will be able to increase profitability while simultaneously increasing loan volume. Now that’s quite a superpower that UPST is delivering to the banks/credit unions. It makes me wonder what will happen to the banks that don’t implement UPST. So UPST is providing a win for the bank, a win for the borrower all while taking a cut (win for UPST). If we focus on the business and project that UPST will do for other lending market segments what it’s already doing for unsecured personal loans, we can see that UPST’s powerful disruption will be applied to inefficient parts of the multi trillion dollar lending market. So with such a solid value proposition and only a tiny fraction of the total market captured, I feel that I must be invested.

So I reduced my allocation after the result from about 32% to about 18%. I knew going into Q3 earnings that 32% was too high of an allocation, and I was planning on cutting it after the Q3 result (unfortunately I cut if after the drop and not after the sharp rise that I was expecting).

GR

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After I wrote up the following in my journal and having read the last few posts on this thread, I’m thinking I’m throwing myself in between somewhere…

As far as why I sold 1/2 of my Upstart, it wasn’t because Upstart didn’t perform well. I sold roughly 1/2 of what was left after a 15% price drop because I realized that my holding what had become a 23% position was based on an inaccurate assessment of Upstarts path to becoming a behemoth. I obviously continue to believe Upstart will become widespread as an essential differentiating factor increasing predictability and profitability in lending. I’m mean the Q3 numbers are worth another look.
Upstart Q3 YoY
-Revenue of $228 million, up 250% yoy!!

-Fee revenue of $210 million, up 235% yoy!

-Transaction volume of loans originated on the platform up 244%!

-Operating income was $28.6 million, up 134%.!

-Net Income was $57 million up 367%!

-Adj EBITDA was $59 million, up $15.5 million!

-Adj EBITDA margin was 26% of revenue, up from 24%.!
Not so bad. Am I right.

I believe why I changes allocation level was primarily due to my misunderstanding Upstarts level of sandbagging guidance from quarter to quarter. Although Upstart does appear to be more accurate in their guidance than most of my past investments https://discussion.fool.com/who-does-that-intentionally-how-coul…. With only 7 to 8 companies in my portfolio, I make investments in companies into a full position when I believe that the growth in share price will match the companies growth rate over the next one to three years. When I have an overweight position in one company it’s not because I expect that One to outperform the others in my portfolio in the next quarter. Usually it’s because I realize that allthe reasons why share prices go up are unknowable. So I follow Saul’s advice and ‘never sell just because the share price went up’. The overweight position had simply grown into its overweight size or after taking an equal weight position then some kind of FUD gets me to take it into the overweight category.

I believe it is the predictability of continued growth that I’m valuing more when explaining why I’m choosing to maintain a higher allocation in Cloudflare or Even Monday compared to Upstart, for example. Not trying to confuse things with any kind of false equivalency, Annual Recurring Revenue and the resulting consistency QoQ it affords is valuable for one of the same reasons Upstart is being adopted so quickly, Predictability (Upstart is showing lenders when borrowers are likely to miss a payment or pay off early, again increasing the profitability but also the predictability for the lender. ).

I can be added to those here believing the Market is valuing predictability more than it has in the past couple years, as the Market looks closer at Hypergrowth names and SaaS in particular (anecdotally, see Cloudflare’s ten quarters of ~50% Revenue growth and its share price rise).

Upstart will never have ARR; however, I believe Upstart will continue to increase their accuracy when giving Guidance. When they do, I’ll be adding more to my Upstart position.

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I shouldn’t have said They trained us to expect huge raises and then they ran into a wall and couldn’t give one. A lot of people seem to think I meant they did this intentionally, and I’m not sure they did, and it doesn’t matter anyway, and that’s not even close to my point. My point is, in Q3, they did not grow explosively like they had been. I’m sorry I focused on the low guidance raise to make this point – IRDoc rightly said, A guidance raise of $100 million this quarter would have been great, but would only have made sense if they actually turned in $260 million this quarter. It makes sense to be disappointed by the actual report from Q3, but the “light” guidance raise already incorporates the disappointing quarter.

That’s right and that’s actually the point. The trajectory they were on is no longer as steep as it was. And that’s not a prediction or a guide…it’s what we saw happen in Q3. Look at their sequential growth each quarter going back a long way:

Q1 2019: -18%
Q2 2019: +66%
Q3 2019: +52%
Q4 2019: +27%
Q1 2020: -3%
Q2 2020: -73%
Q3 2020: +276%
Q4 2020: +33%
Q1 2021: +40%
Q2 2021: +60%
Q3 2021: +18%
Q4 2021 guide: +16% (will be beat, of course)
Q1 2022 guide: ???

Notice that before last Tuesday’s report, the lowest sequential increase (other than in a Q1) was 27% back in Q4 2019. Even if you smooth out the quarters from Q1 2020 to Q2 2021, it’s a 25% CAGR. That’s not happening now, and Q3 was a rude awakening to that fact. Upstart’s steep up and to the right trajectory has flattened quite a bit. We might get a quarter or two of 25% or even 30% sequential growth (though also perhaps negative sequential Q1’s again), but long term I think the trajectory is unlikely to re-accelerate, because the raw revenue/origination numbers have become pretty large. If I’m belaboring this point, it’s because some people sound like they’re trying to ignore this slow down, saying that, “oh, it’s just lumpy because it’s non-Saas.” No, it has slowed down considerably.

Also from the numbers above, we see Q1 seasonally is not their friend (except 2021 since they were still bouncing back from covid). Something else to watch out for in the upcoming quarter – the market might not like the guide.

I greatly respect GauchoRico, and his thoughts should always be seriously considered, but this strikes me as a very uncertain proposition: If we focus on the business and project that UPST will do for other lending market segments what it’s already doing for unsecured personal loans, we can see that UPST’s powerful disruption will be applied to inefficient parts of the multi trillion dollar lending market. That’s a lot of hoping…will mortgage (for example) be as profitable for Upstart? Perhaps Upstart’s business model only works on high-interest / sub-prime personal (and maybe auto). Or maybe GauchoRico, and UPST’s CEO, are right and they will dominate the lending world. I already said this was a possibility. But the problem with the long term is, it takes a long time. And it’s usually not a straight line. Here’s a quote from this board (from a very respected poster) on Peloton from February: Peloton has a chance to not only dominate fitness but possibly turn itself into a lifestyle ecosystem. I don’t think he was wrong, and I honestly don’t think that’s changed. What has changed is Peloton’s trajectory. Growth exploded for a while, and now it’s not exploding. The reasons don’t matter, because whether supply issues or demand issues, external issues or market issues, etc…this is just how it goes for non-SaaS companies!

Upstart’s trajectory has changed, too. Even if long term it’s still quite up and to the right, it’s not as steep as we were hoping. Frankly, it’s not as steep as I need to invest in non-SaaS. So maybe GauchoRico is right on this point: Bear stated that UPST is not SaaS and therefore its business model is inferior. Correct that UPST is not SaaS, and perhaps Bear will only invest in companies with a SaaS for all eternity.

I can try.

Bear

PS I got an extremely thoughtful email, the main point of which was that while Upstart doesn’t have recurring revenue, perhaps it has recurring business when it signs up more and more banks. I don’t disagree with this, but the relationship between bank partners and originations is non-linear, to say the least. This is because 2 banks (Cross River and Finwise) made up 84% of Upstart’s revenue this quarter. I think each bank they add is at best an incremental “kicker” rather than a sturdy ballast to the level of revenue/originations Upstart enjoys. I believe other factors (such as macro loan demand) will have a much stronger effect on Upstart than their number of bank partners.

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Very good update Bear, thanks for sharing your perspective and insights into the process that led to your decisions. I value that, and I also value the sell side logic that helps me stay grounded when the hype is at a crescendo.

My only question here is what would make you buy back into UPST?

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Even if you smooth out the quarters from Q1 2020 to Q2 2021, it’s a 25% CAGR.

Ugh this is one of those times I really wish I could edit my post. Of course I didn’t mean a 25% annual growth rate, I meant a 25% QUARTERLY growth rate, as in sequentially. That’s 144% annually. So they were growing at this gaudy rate for a while. Q3’s sequential 18% equates to 94% annually which would still be great if they could sustain it. Personally I think growth will look a little more like this in 2022:

Q1 -5%
Q2 +30%
Q3 +20%
Q4 +20%

That would be 78%. Still great, but is it good enough for non-SaaS? And then what is it in 2023? 50%? 40%?

Bear

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with mcap of 19b at this point and 808m guidance ev/s (2021) = 23.5

with fwd rev growth expectation of 78% → 1438m guidace for 2022 → ev/s (2022) = 13.2

if we assume that growth will further deaccelerate to 50 to 40% over coming years then maybe ev/s will compress further to 20 in 2022 as revenue expand. putting mcap to be around 29B in 2022 or a 51% rise from now. of course, in bullish case where Saul said that this is at beginning of s shaped curve. then it may deserve higher ev/s.

I am not sure what would be fair ev/s for it being a non-saas. but I think a saas company with similar profile would be double, so market may have already priced in dire scenario at this point.

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I have to admit I’m baffled by the handwringing over Upstart. Did many on the board get overly enthusiastic? Yes, I could see that one coming. Is the backlash overly enthusiastic? Heck yes.

I admit some of this might have to do when people got in. I was lucky and managed to get most of my shares on the “mystery dip” back in March, around $85. Which means even with the pullback, I’m sitting on almost a triple…in 8 months…are you kidding me?! And as far as I can tell, there’s still much more room to grow. I wouldn’t dare complain, lest the stock gods deem me unworthy…

If you got in later, YMMV, but still, I think the post-earnings reaction is very misguided. This one in particular stands out (caveat: I have a huge respect for @PaulWBryant’s contributions, but disagree with this one):

Here’s a quote from this board (from a very respected poster) on Peloton from February: Peloton has a chance to not only dominate fitness but possibly turn itself into a lifestyle ecosystem. I don’t think he was wrong, and I honestly don’t think that’s changed.

Sorry, but that premise was never true. The TAM was never as large as the enthusiasts were suggesting, it would have required a change in basic homo sapiens behaviour. Peloton was only ever going to be a flash in the pan. If you were lucky and could time it you could have made a bundle, but it that one was too mercurial for me.

What has changed is Peloton’s trajectory. Growth exploded for a while, and now it’s not exploding. The reasons don’t matter, because whether supply issues or demand issues, external issues or market issues, etc…this is just how it goes for non-SaaS companies!

The reasons DO matter. This isn’t magic, to be hand-waved away. The market for Peloton was always small: wealthy people with space to devote to a machine and the hope that having one would inspire them to become more healthy. That’s a population sliver, with no moat. How many brands since have slapped on a cheap iPad-like screen with a wifi connection for their own custom workouts? Or added VR so you could “cycle” anywhere in the world…or even any fictional world? Based on youtube ads, there are at least 3 other brands now competing in that space, all of them well known, and probably with a larger mindshare than Peloton.

But none of this relates to Upstart at all. Their TAM is huge. It’s so huge there will invariably be legitimate competition, but the nut they are trying to crack is extremely difficult and as far as I can tell they are way ahead of anybody else. Sometimes being a first mover in manufacturing is actually a drawback, because the competition can learn from and bypass your mistakes. But being a first mover in modelling, data collection, and AI learning is a huge advantage because data drives accuracy and the competition has to play catchup.

Even if long term it’s still quite up and to the right, it’s not as steep as we were hoping.

Who is this “we”? I felt the market was getting ahead of itself, and the fervour on this board was getting a little hot. But as noted above, I’m not remotely disappointed. I’m just grateful the stock was brought to my attention.

So they aren’t SaaS, meaning their revenue and growth is less predictable: I’m fine with that. If the stock hangs for a while, fine with that too…a triple in a year is way more than I could have hoped for, and I can defer the tax burden. Meanwhile, more and more banks and CCs seem to be signing on, which can only be a good thing.

What would change the story for me? Loan origination counts staying flat, banks and CCs signing OFF, any other signs that they aren’t providing the supposed benefits of matching underserved borrowers with reasonable rates. But until that happens, I don’t see the point in selling.

Growth exploded for a while, and now it’s not exploding…this is just how it goes for non-SaaS companies!

One last poke at this: this is also untrue. SaaS companies can also stop growing from one day to the next (the market is saturated, the competition has a better offering)…revenue just becomes flat, but you’re still left with an over-inflated stock price. SaaS is great for revenue consistency, but it says nothing about growth.

One last comment since I’m here and rarely post: A lot of people seem to have sold on the “down day”…and I don’t get it. That very action seems to have been the culmination of the over-enthusiasm in both directions that was circulating around the board, and flies in the face of the discipline touted on this board. I had this illusion that this board was a refuge from the “madness of crowds”, but it’s good to get a wakeup call.

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I hesitate to add to a UPST thread that is already too long. I’ll make it short because I have a point to make.

Albeit the fraud attack in Q3 is not a one time event. UPST got big enough with enough press to attract the bad guys. If the bad guys could get free money, then why not. I cannot find any details published on the fraud attack. If somebody here does, I would be really interested in studying it. Send it to me.

“My guess” is the attack by the bad actors was to test for holes in their machine learning algorithms. It was not just a credential attack. Yes the very Einstein algorithms that led us to purchase this company were under assault. Upstart uses AI based fraud detection that has limited fraud rates to <0.3%. Automated trial and error probes flushed out the weaknesses and fraud was perpetrated. The bad actors were tuning their own algorithms based upon what they learned from the probes. Maybe UPST caught the probes before any significant fraudulent loss from bad loans. Daily monitoring is critical. UPST said there was no impact to their loss rate. But they did say this impacted their loan originations and I bet they were crapping their pants. The potential was there for a major impact to their business. It is rocket science having to quickly modify complex ML algorithms on the fly that took years to develop. And very risky to their business because this is the heart of their business. So albeit they went for fast conservative changes that resulted in a lower loan approval rate. It is possible improvements will be made that return them back to the higher loan origination rate. All of this is a two edged sword.

There are a lot of suppositions on my part for the above. I apologize if it is too much paranoia but I used to test ML algorithms for cyber attacks and daily warfare is real to me.

My point is that these UPST Einstein algorithms will be perpetually attacked and tested going forward. Refining the ML algorithms is core part of the UPST business. And yes this could lead to quarterly lumpiness or even a big miss. At the same time, the ML technology moat around the UPST castle becomes deeper. It seems to me that UPST Engineering did their job and this gives me some confidence in this company.

-zane

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Personally I think growth will look a little more like this in 2022:
Q1 -5%
Q2 +30%
Q3 +20%
Q4 +20%
That would be 78%. Still great, but is it good enough for non-SaaS?

How much would UPST need to beat these numbers by for you to reconsider getting back in? If Q1, for instance, comes in positive, would you change your mind or wait for another quarter (or two)?

Or, do you have other criteria as well?

More generally, can you explain a bit about your different metrics requirements for SaaS vs non-SaaS companies?

You also previously said:
That’s a lot of hoping…But the problem with the long term is, it takes a long time. And it’s usually not a straight line.

Are you now only investing in guaranteed short term, straight line up winners? I recall you have previously bemoaned having a large cash position since you couldn’t find enough companies in which to invest. Maybe being extremely picky is a good thing, as you only invest in sure-thing almost immediate winners, but can that be a sustainable investing philosophy? The Motley Food is motley, but one consistent thing almost all its services preach is long term buy and hold. Saul himself has said he always enters new positions with the intent of a LTBH, with constant re-evaluation of the company’s performance and prospects. It appears to me that you’re taking the prospects out of the equation.

I’d argue that while the future is never guaranteed, even for SaaS companies, there’s a difference between Hope and objective analysis that produces actionable conclusions about future expectations. Huge kudos to @jonwayne for immediately recognizing flaws in his prior analysis, but throwing out all future analysis of business company plans and current execution towards future goals as “hope” and demanding short-term straight line growth just doesn’t seem to me a good alternative.

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