3 new hypergrowth ideas: UPST, FOUR, & PERI

Investment Analysis Clubs Saul’s Investing Discussions
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UPST and PERI i believe are entirely new to this board.

FOUR may have been discussed because i learned of it from Bert’s work.

All 3 are very well led companies (brilliantly led actually, IMO) in the hyper growth/software space and all of these stocks have more than doubled for me in recent months.

UPST (12/20) and FOUR (6/20) are recent IPOs.

“Upstart is partnering with banks to provide sophisticated lending technology and operating within a very large addressable market. It is a subscription model that provides banks with far superior credit risk information on prospective borrowers.” (SA article)

Shift4 payments has been recommended repeatedly by Bert in recent months. After doing a deep dive on the CEO, Jared Isaacman, I was so impressed with the leadership that i dove in for a hefty stake. Here is an excerpt from Bert’s email reply to me on FOUR:

“The whole concept of this company is that they offer a platform and a merchant can run their entire business from the platform. Square sort of does that, but these days the focus of Square is on cash, and not its small business platform. PayPal is way behind in this area. It, too, has a different focus. The secret sauce here is end-to-end processing. Here is a link to that:https://www.shift4.com/end-to-end-processing/. The economics are such that converting users to end-to-end is a huge bump in revenues for FOUR and actually has net savings for users.”

Bert also has a recent SA article on FOUR.

p.s. CEO Isaacman, a highly accomplished and decorated pilot, was just last week announced as Commander for Elon’s SpaceX all-civilian mission launch.

Can’t recall where i first heard about PERI, an Israeli ad tech company, which may not yet have proven itself as hyper growth. I believe it will soon so qualify. I considered not including PERI so pardon me if this violates board rules. I’ll simply say it is the top holding in ARK/Cathie Wood’s IZRL fund. I prefer this to MGNI, though MGNI may continue to do well.

I have an email request to Bert, asking his view on UPST and PERI. He has not yet replied except to say he was not aware of either company but would get back to me after he takes a good look.

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UPST - 98% of revenue from loan referrals. Nice niche, but TAM and customer base seems very limited at first glance.
FOUR/PERI - Not nearly the revenue growth expected for these companies to be raised for consideration on this board.

Daws

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I think the TAM for UPST has significantly increased, with their business pivot. I was not interested in them for a while, thinking that their model was still a P2P model like Prosper.

The fact that they are giving banks and loan services their AI to automate their loan services is a much better business model.

Their AI is more complex than simply asking for income and credit score and an individual approving or disapproving a loan.

I do not have a position yet, but I believe the change could lead to a continuation of these growth numbers.

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UPST and PERI i believe are entirely new to this board.

I read your post and see no financials. Were you asking me to do this for you?

What justifies these “hypergrowth ideas”

Convince me.

🆁🅶🅱
post tenebras lux
For not in my bow do I trust, nor can my sword save me.

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Took a look at PERI this morning. Nice. Blew out earnings -“PERI reported quarterly earnings of $0.45 per share which beat the analyst consensus estimate of $0.18 by 150 percent.” “Revenues were $118.3 million, a 51% increase year over year.” Guidance under promised and over delivered. Went ahead and opened a small position this morning.

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I read the press release from PERI and I am not nearly as optimistic:
https://www.perion.com/wp-content/uploads/2021/02/PERI_Q4_20…

The MAJOR concern is this:

Outlook
In 2021, management expects to generate revenue of $350 to $370 million and Adjusted EBITDA of $35 million to $37 million. The mid-point of the guidance range reflects 10% growth and 10% Adjusted EBITDA margin.

Why is this concerning?

Their F20 Q4 revenue was $118.3 MM. Multiplied by 4, this equals $473.2 MM.

My interpretation, is they are guiding for a deceleration in growth.

Daws

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My comment is not superficial, it is based on the numbers from the company’s own guidance for F21.

Yes, I can see the huge acceleration of their Display and Social Advertising Revenues of 159% from Q3 to Q4. That is a great news story and shows hypergrowth suitable for this board.

But I reiterate, the guidance is very concerning. See this table (I’m just going to flat line the guidance because it makes no sense in the context of their Q4 revenue):


           F19                 F20                  F21(Guidance 350-370MM)
           Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4    Q1(E) Q2(E) Q3(E) Q4(E)
Adv Rev    19   19   22   26   24   21   38   68    51    51    51    51
Adv YoY                        28%  -12% 76%  159%  113%  143%  34%   -25%
Search Rev 35   42   44   52   42   42   46   50    42    42    42    42
Search YoY                     20%  -1%  3%   -4%   0%    0%    -9%   -16%
Total      54   64   66   78   66   60   83   118   93    93    93    93
Total YoY                      23%  -5%  27%  51%   41%   55%   12%   -21%

I listened to their conference call this morning. They mentioned they are targeting 500M revenue by 2023. That is CARG of 15%. In the Q&A they said they are targeting minimum 10% annual growth in revenue. They also quoted 20% organic growth in Q4.

They were directly asked about the decelerating growth in their guidance - I found the answer did not provide a lot of clarity (reference conf call question at 36:25 of the call):
Company management quite conservative with their estimates. This is the first quarter and there are some unknowns. One of the few companies in this segment that are even providing guidance 3 years from now. In a very unique situation with offering, they are offering a diversification strategy that allow them to capitalize on changes that are happening in three main pillars. Preparing very much for growth. Would like to start the year with conservative numbers.

It appears investors are ignoring this guidance for some reason that is not clear to me.

Daws

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Yes, this is a turn-around story - like basically all advertisement businesses - even GOOG and FB as well as PINS had dips in first half 2020 and many of us exited, for example, PINS (including me or Bear or others, but many stayed the course).

With all due respect if it’s a turnaround story, then it is NOT yet appropriate for this board. Names like PINS, ROKU and ZS have already passed through their rough patch and reentered hypergrowth. That makes them very suitable for discussion here. The others are nothing more than speculation even if there might be a legitimate theory behind them. That doesn’t mean you can’t own them. They just don’t fit here.

Look. I get it. There are a ton of stocks seeing serious momentum right now, especially those which might benefit from the move to CTV. However, this is not the place for spraying out a few sentences with a bunch of companies that don’t meet hypergrowth criteria and then trying to guess which ones might stick. Tell us which ones are already dominating and why that domination will continue. That’s the best way for everyone here to make money.

Everyone should please keep that in mind when presenting a new name.

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I would recommend you check out the “Knowledge Base” for this Discussion board. Saul and the moderators have done a fantastic job of documenting the key aspects of the approach followed here.

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UPST: 9mo2020 growth was 44%, falling rapidly from 65% growth in FY19 and 73% growth in FY18.
FOUR: Q3 yoy growth was 10%, 9mo2020 growth was 5%!
PERI: Q4 yoy growth was 51%, FY20 growth was 28%

UPST barely makes the cut for this board and FOUR most definitely does not. If there’s an investment case for growth acceleration for PERI (or even UPST), please start a new thread with your investment case.

In the meantime, this thread has gone 16 posts without creating much value for readers. Let’s not add to the dilution in discussion. Thank you.

Asst. Board Manager

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