Bert’s take on UPST:
Summary is, in spite of a terrible earnings call, negatives are overblown and he sees an opportunity to buy here.
Upstart’s conference call was not a thing of beauty. Indeed, at times it was excruciating listening. As it happened, there was some good news to consider.
I think the arguments presented in the negative thesis are both misinformed and overblown. Some of what I have read from brokerage analysts seems to me to present close to willful misunderstanding of the facts that have been presented with a fair degree of confirmation bias.
The fact remains that Upstart is a key disruptor in the consumer finance space. It has disrupted consumer lending, and it will soon be disrupting auto lending, lending to small businesses, and small dollar lending. It is doing so in a profitable manner. Its models appear to be accurately analyzing credit risk and are also being improved through the addition of macro-economic variables as part of the underlying process of evaluating credit. The company’s investor deck shows the outperformance of the company’s models vs. the use of FICO scores to evaluate credit.
I consider Upstart to be one of the better opportunities in the technology space in the wake of its share price implosion. Unloved, misunderstood, with a fair amount of negative confirmation analysis in published articles. That can be a very powerful combination to produce positive alpha and that is my expectation.
(I am long UPST)
- From https://www.fool.com/investing/2022/05/16/upstart-investors-…
“At the time of its 2015 IPO, LendingClub also dubbed itself a “fintech platform” that used big data to originate loans at lower costs than credit cards and would then sell them to yield-seeking investors. Like Upstart, it specialized in personal loans.”
and then later…“So what happened to LendingClub? It’s pretty similar to what’s happening to Upstart now. LendingClub used to specialize in higher-yielding, high-risk loans. But in 2016, the market tightened and its underwriting started to show increased charge-offs. Since it was a “platform” business that sold all loans to investors, its business model was predicated on getting more volumes of loans moving through its system. Amid a slowdown, former management was found to have altered certain investor criteria to juice demand and get more loans approved.”
and 2) Even if UPST were to totally replace FICO, the market cap of FICO (Fair Isaac) is about 9.5 B, no debt, etc. UPST is already at 3.2 B. From this vantage point, it seems that the ceiling is limited.
I am long UPST, sold nothing but not buying dip, either.
Why didn’t Lending Club diversify into Auto Loans? Did they try but were unable to?
UPST should be able to grow loan volumes through there growing auto-dealership network, and then also with the other categories they are adding.
Long UPST ( down ~66%)
Even if UPST were to totally replace FICO, the market cap of FICO (Fair Isaac) is about 9.5 B, no debt, etc. UPST is already at 3.2 B. From this vantage point, it seems that the ceiling is limited.
Upst has a Revenue run rate right now at 1.2 billion and Fico is at 1.4 billion. Upst is just starting to go into Auto loans. I wouldn’t compare Fico to Upst. Yes UPST is going to dethrone Fico but it is going to be much more profitable and bigger than Fico. Their business model is just so much more superior.
Yes UPST is going to dethrone Fico but it is going to be much more profitable and bigger than Fico. Their business model is just so much more superior.
I believe that the model that Upstart is using prevail. However, this last conference call leaves an open question if Upstart will be the company that is making money from it.