Comparison of UPST vs. Zoom

Many here on the boards expressed that Upstarts recent earnings on August 10th reminded them of when Zoom reported great numbers approximately little over a year ago. I agree as it also reminded me of Zoom’s results. I recently posted looking at Upstarts revenue growth and what the rest of the year might look like…. I had previously read a post or two on the boards were some of our members expressed after the run up in stock price they planned to wait for a pull back.

I personally have been buying UPST over the past few days as I mentioned previously. I thought I would look at ZM’s numbers from last year and half and compare them to UPST to see if anything can be gleaned between the two. The reason I choose Zoom is the fact it is the only company that I can thinking of that had somewhat similar quarterly blow out of stocks which I have personally followed.

Zoom reported its Q4 2020 results on 3/4/20 with a quarterly revenue of 188.3 million. Compare that to Upstart’s recent Q2 2021 results on 8/10/21 with quarterly revenue of 191 million. Why compare these two different time periods between these two companies? Because of the similar quarterly revenue numbers.

Zoom’s market cap number at the end of the day on 3/4/20 was 30.2 billion dollars. Stock price was $116.80 with diluted share count of 292,771,122. I remember people at that time telling the board that Zoom was overpriced, this included myself…
“Lots of debate on ZM and it may crush the next few quarters. However put me more in Bears camp, valuation seems lofty. They have to excute flawlessly to appreciate in price. Probablities not in their favor. Rather put my money on AYX.”

I was wrong!! Thankfully I bought back in May and made a lot of money. I was not alone as many people thought the prices had run up too much since previous earnings report 67% in three months.

Upstart’s market cap number at the end of day on 8/10/21 was 12.86 billion dollars. Stock price was $135.68 with diluted share count of 94,802,123.

Upstarts share price as of close of market yesterday (8/20/21) was $195.64 with a market cap value of 18.5 billion dollars. UPST stock has risen 44.2% in last ten days since earnings were announced. Even after this run up UPST’s market cap is much less than what Zoom’s market cap was when it reported similar quarterly earnings (188.3m vs 191m).

Let’s compare some more between ZM and UPST. Zoom’s Q4 20 earnings represented a Y/Y growth rate of 78% vs. Upstarts Q2 21 Y/Y earnings which grew 1018%. Now we know that Upstarts Y/Y are impacted greatly by its 2020 low Covid earnings, so hard to make any real comparison’s there. However the previous quarter revenue Y/Y for UPST was 90% (a touch higher than ZM’s).

If you look at ZM’s Q/Q growth from Q3 20 to Q4 20 it was 13% vs. Upstart’s Q1 21 to Q2 21 which was 57.9%. Zoom forecasted for the year was 915 million vs. Upstarts forecasted annual revenue at 750 million.

So looking at these two different period of times on these two companies we have similar reported quarterly revenue growth numbers however UPST Q/Q growth rate is much greater, yet its Market Cap is still much less than what Zoom’s market cap was at the time. Zoom was however forecasting greater annual revenue growth.

Now Zoom in early March 2020 was just taking off in a big way due to the pandemic. Zoom had forecasted Q1 2021 of 201 million, which would have represented a 6.7% Q/Q growth rate ((201-188.3)/188.3). Compare that to UPST forecasted Q3 21 revenue of 215 million, which represents a 12.5% Q/Q growth rate ((215-191)/191). Now we know that both companies were/are being conservative with their growth rate projections.

Zoom reported Q1 2021 earnings on June 2, 2020. The price of the stock at that time was $208.08 which represented a 79% increase in share price from the previous quarter (reported in March). Market cap was 60.9 billion.

Zoom goes on to blow estimates out of the water for Q1 21 due to the accelerated adoption of there software caused by the pandemic. Zoom reported Q1 21 quarterly revenues of 328.2 million. This represented a 63.3% beat over forecasted revenue, a 74.3% increase Q/Q revenue and 169% increase in Y/Y revenue! They forecasted increase in Q/Q growth of 52.3% (500m) and also doubled the forecasted annual revenue to 1.8 billion! It is the most impressive earnings report I have ever seen.

Zoom reported Q2 21 earnings on August 31, 2020. The price of the stock was at $325.10 and market cap was 95.18 billion. It reported earnings of 663.5 million, which was 355% Y/Y and 102.2% Q/Q, which represented 32.7% bet on forecasted revenue. They would go on to forecast 690 million for Q3 which indicated a massive slow down from the previous two quarters. The next quarter they did beat by 12.6% by reporting Q3 quarterly revenue of 811 million. Price at this time was $478.36 with market cap of 140 billion.

Since then Zoom has continued to growth quarterly revenue and continued to beat their own forecasts but share price was at $336.86 at end of market on 8/20/21. This represents a market cap of 98.6 billion. Today we are a year and half from when Zoom reported similar results as Upstart and the price is up 188% since that time and Zoom started with a significantly higher market cap than Upstart.

So what does all this have to do with UPST? Absolutely nothing, but it does give us an example of a rapidly growing company that many felt was over valued or felt the stock price had run up too quickly (remember I was one of them! Picking on myself here). I am not saying that Upstart is going to grow as quickly as Zoom did during the next year and half time period either.

Zoom’s Q/Q revenue growth rates, reported revenue and stock price

Q3 2020           +14%         167m       $92.69
Q4 2020           +13%         188m       $69.96
Q1 2021           +74%         328m       $208.08
Q2 2021          +102%         664m       $325.10
Q3 2021           +17%         777m       $478.36
Q4 2021           +14%         883m       $409.66

Upstart Q/Q revenue growth rates, reported revenue and stock price

Q1 2021	           +40%         121m       $89.44
Q2 2021            +58%         191m       $135.68
Q3 2021	           +37%         261m       My Guesstimate (conservative IMO)
Q4 2021            +27%         331m       My Guesstmate  (super conservative IMO)
Q1 2022	             ?

Upstart was coming off a smaller revenue base but is growing more rapidly. Zoom absolutely exploded with growth which has since settled down into a more normalized level.

I can see Upstart growing revenue even faster than my guesstimates above but my crystal ball is very cloudy and the farther you go out harder it is to get close with predictions. So what is the point of this exercise? To look at another company that recently had hyper growth to evaluate what happened during that period with its stock price.

I would argue that Upstarts stock price is not over valued right now even after the run up the last ten days. I believe that it is under valued based on the rate of growth that it recently displayed and based on the information presented by the members of this board. I easily could see an acceleration of revenue growth rates above what I have listed here. I do not want to rehash all of the growth drivers of the company as the board has covered them greatly.