OK - Upstart is not looked on fondly by many on this board. Saul has compared it to Fastly. John Wayne (whom we’ve not heard from for some time) initially provided incredibly insightful positive analysis on the company only to excoriate them repeatedly after their greatly disappointing 3Q21 report. At the risk of being considered a hypergrowth heretic I admit that I have maintained a small position in Upstart (3%).
Those of us who paid attention watched the stock get killed the day after the quarterly CC (August 9) only to soar by 17.75% at the close of the market today (August 10) based on what appears to be moderating inflation suggesting the Fed my ease up on boosting interest rates (I guess).
But we don’t invest in stocks here, we invest in companies. So I would like to make a case for Upstart.
My first encounter with Saul was several years ago (I think in 2012, prior to this board’s existence) when, as a MF adherent I read a post written by Saul on one of the discussion boards about a company named Westport Fuel Systems (WPRT). This company was a MF darling with many avid followers. Saul very calmly and very logically pointed out why this company was a bad investment. Westport was trading in the $40 range at the time and due to very positive MF analysis many folks (myself included) thought this company was destined to be a multibagger. Saul had the temerity to express a contrary opinion. His post was not warmly received. There were a lot of heated, emotional retorts to his post. My recollection is that I posted my gratitude for his insightful post. I sold my shares the next day.
So with all due respect to Saul, I have a contrary evaluation of Upstart. I do not see it as story stock like Westport. I do not believe that the comparison to Fastly is valid.
Westport was a story stock. If you’re not familiar with the term, it refers to stock issued by a company that purveys a promise, usually based on some technological breakthrough which they do not possess. But, they’re engaged in R&D with very positive results. Maybe there’s an issue with scale. Lots of technology can be demonstrated in the lab, but that’s very different than a marketable product. Maybe, the lab results aren’t even realistic (think Theranos and Elizabeth Holmes). Maybe there’s some other problem which the company typically either doesn’t acknowledge or downplays. In any case, the company is peddling a promise rather than a product. They have a great story and the tell it very convincingly.
Upstart has a real product. They have developed and brought to market an AI/ML based product that does a better job of performing risk assessment associated with lending than the competition (i.e. FICO). This is an inarguable fact. Some critics have challenged this fact, but that doesn’t invalidate it. Upstart is not a story stock. Most certainly, the company has some problems, but the problems are not made of undeliverable promises.
The comparison to Fastly might be closer to the mark, but again, I don’t believe the analogy to be valid. Unlike Fastly, Upstart is not trying to focus on a small but elite customer base. Quite to the contrary, they are making serious efforts to have a broad base of customers. For example, they have developed an interface for Spanish speaking potential customers, a greatly underserved segment of the lending market. They are expanding into auto lending, small dollar lending, SMB lending and in the not too distant future, mortgage lending.
However, at the present time, they have curtailed S&M activities as their greatest single problem right now is the source of financing in support of lending. Their banking partners (which admittedly have been spinning up very slowly) have reacted negatively to the current macro-economic environment. Upstart’s management recognizes this problem and they are taking steps to address it.
So, IMO, Upstart remains an unique, disruptive company in the world’s second oldest profession - lending, the foundation of capitalism. As with all market timing issues, I can’t predict when Upstart will establish long term partnerships with sources of financing. So, I am willing to maintain a small position in the company commensurate with my confidence level.
Bert’s public SA article goes into greater detail. It is linked here: https://seekingalpha.com/article/4532689-upstart-the-bad-new…