I was wrong about Upstart

This is a post that covers in my own words the podcast of Jeff Keltner, SVP of Business Development at Upstart with NAFCU https://www.nafcu.org/education-certificationeducational-res… Also, it covers the recent free article on UPST by Bert Hochfeld https://seekingalpha.com/article/4460038-upstart-the-end-of-…

It also includes my [own thoughts] around Upstart and where it is headed as well as where I was wrong about it. I didn’t want to clutter the board with several posts so I thought combining several posts into one would be best.

Here’s what I liked from the podcast, in my own words, along with [my comments]:

We came to Upstart from Google, so we came into the lending space from the tech side with the belief that 1) the number of people who are creditworthy was greater than what it appeared to be and 2) the process was harder than it ought to be in our digital age.

We left Google to start Upstart with the fundamental belief that we could make the world better through modern technologies. And by using AI/ML we could solve the above-mentioned problems by increasing the number of people who can gain access to credit, lowering the cost of that credit as well as simplifying the entire process, and making the experience better.

[I think we are in a phase where tech is changing business operations in all sectors rapidly. The question is how fast the adoption can take place. In this day and age, it doesn’t make sense to go through outdated ways of doing things including gaining access to credit. Fairness should be a top priority of all companies. Upstart proves to be a tech company — above all — that has not only the skill and expertise to transform the credit industry but also the urgency to do things fast and fair.

As we all know speed is as important as anything else. You come up with an idea and if you don’t execute it fast enough it will be more detrimental to the health of your business than if you executed the plan perfectly but at a later stage. At that stage you might not be relevant anymore, the competition might have caught up, or someone else might have come up with a better solution altogether.

Fairness is another big part of Upstart where underserved clients gain access to fair credit conditions while at the same time educating and promoting healthy financial practices to help people improve their finances. This is of great importance. A company that actually wants both their direct (banks or clients that come through upstart.com) and indirect customers (customers that come through white label solutions) to do well.]

Covid accelerated the move towards better digital experiences. People are used to Amazon, Uber, DoorDash and want that kind of experience everywhere. Banks and credit unions now want to offer that same experience to their customers. Also, there are a lot more cash deposits that they wish to take advantage of by giving out more loans. In technology, having a strong balance sheet with plenty of cash is good, but in the credit industry, this is considered bad as it is seen as sitting money and not putting it to work.

Customers now not only want but expect better experiences and start to question and wonder why you don’t have it and start judging you if you don’t provide this. So now the amazing becomes the ordinary. It’s even more evident in younger generations including kids with Netflix etc. The reality is that tech becomes expected, and expectations change rapidly.

People think AI as something like chat robots but in reality, you just try to predict and put the pieces together of all the data points you have. Do customers pay back or not, and that’s well suited to AI making proper credit decisions by maximizing returns while minimizing risk by identifying good borrowers and reimagining the old ways.

By introducing better experiences to customers, banks and credit unions improve not only their clients’ experience but their employees’ experience too. Employees now feel more excited and engaged since they are adding real value to clients whereas before they were just moving files around. Now they become more of consultants who guide customers through the different options and help them make decisions based on their needs.

[Simply put, credit unions and banks don’t want to be left behind. They understand that customers demand a much better experience no matter what they shop for. Be it a burger and fries or access to loans. By adopting new technology not only do credit unions improve their revenues, but they also cut their costs, improve their employees’ engagement thus reducing the churn. This is a positive domino effect where everyone involved gets something out of it. Upstart creates a better environment by allowing lenders and borrowers to interact seamlessly under fairer conditions never seen before.

Well, what happens when a competitor comes along you may ask. Do you really think that a bank or a credit union will think about changing into a different platform? If you said yes, then well, think again. We see how long it takes for a bank or CU to come on board. We see how strict they are with regulation. And we see how conservative they are to shift into newer technologies and lift FICO scores altogether. Do you really think that after such scholastic considerations they will simply jump ship to try out a competitor considering they are doing so well with Upstart? I think not.]

3 things I was wrong about Upstart:

1- Upstart mentioned several times that they aspire to be the best FinTech company in the world. In the beginning, I thought it was simply a marketing trick. Every company aspires to be the best in what they do. Or so they state. Upstart proved me wrong on several occasions. Like when it became a digital-first company. This is a crucial factor to me when assessing forward-thinking companies. If a company doesn’t allow or even encourage remote working then it simply misses out on better savings, better talent, better productivity, better engagement, better everything really.

2- Based on my poor calculations back in May I set a $300 PT for UPST by year’s end. That was before all the analysts started increasing theirs and even a $200 PT was too high for some investors. The stock indeed kept climbing all the way from $100-120ish that it was back then to first reach $300 in September 3 months earlier than I had anticipated. I have no idea where it goes from here and how fast. This was just based on my poor skill calculations. At the end I express my thoughts on when and why I keep buying more of UPST.

3- I thought Upstart wouldn’t roll out the auto platform before 2022. I was wrong again. Upstart did roll out their rebranded auto retail platform as announced a week or so ago. https://ir.upstart.com/news-releases/news-release-details/up…

4- This is yet to be confirmed or busted but my next estimation is that Upstart will exceed 1 billion in TTM revenues within the next 2-4 Qs. My hope is that they do it by Q421 but my question is: What happens if they don’t?

The highlights [and my comments] from Bert Hochfeld’s article:

I do think that — at the current valuation — is an excellent time to buy or add to positions in Upstart shares. Simply put, as we approach the next earnings report for this company, I think that once again, it will blow numbers away.

[I agree with Bert here, I expect the next earnings to be rock solid which is confirmed to be on November 9 [https://ir.upstart.com/news-releases/news-release-details/up…](https://ir.upstart.com/news-releases/news-release-details/upstart-report-third-quarter-2021-earnings-november-9-2021])

The company CEO Dave Girouard was indicated to have sold tranches of shares at the start of September and then at the start of October. The shares sold were apparently part of an automatic 10b-5 program. Mr. Girouard sold 137k shares at the start of each month, and now has a holding of 11.7 million shares. While this news may influence some traders, in my view it has nothing whatsoever to do with the prospects for the company.

But Upstart offers what I consider to be an irresistible value proposition to its partners in the financial world. One hardly need an advanced finance degree to figure out that any solution that offers an almost instantaneous way for bank partners to grant a higher proportion of personal loan apps with a smaller percentage of loan losses is going to have a reasonable opportunity to “run the table” in its space. It would, indeed, be difficult to find a financial institution who wanted to turn down what appears to be “free money.”

[Who wouldn’t want free money? Because this is what Upstart is offering. It’s like opening a shop and someone (FICO) is holding the door closed for you. And here comes Upstart kicking in that door wide open with their AI/ML and letting qualified shoppers come in.]

And Upstart has a business model that is unique in the fintech space to some degree - it originates loans, but it has minimal credit exposure and none of the loans it originates cause significant demands on the balance sheet.

[I think we’ve already mentioned this several times but it is of great importance. Upstart is the person letting qualified shoppers come into your shop. That’s it. This is what Upstart does. It doesn’t take on the risk. It doesn’t carry any loans on its book. Upstart is not an originator (risk taker) simply an underwriter (risk evaluator).]

The current count for banks was 25 at the end of Q2. Just the other day, the company announced yet another bank partnership, this time with an institution called WSFS the largest local bank in the Wilmington, DE area. The bank is not a titan as those things go - $15 billion in assets and 89 banking offices. But it is the kind of mid-sized, regional bank that is the target market for Upstart.

The company continues to expand its partnerships with credit unions in the wake of its preferred partner agreement with NAFCU (National Association of Federally-Insured Credit Unions). The credit union space, just on its own, is an enormous opportunity for Upstart. Overall, Credit Unions currently have assets of nearly $2 trillion. This past quarter the company announced 2 credit union partnerships and an additional credit union partnership was announced in the last couple of days.

[The positive domino effect is taking place. The question is not whether or not Upstart can have 100s of banks and CUs. The real question is when. It’s simply a matter of time.]

Another sign of growth for this company was the announcement on Oct 3rd that Upstart is hiring an additional 250 data scientists and software engineers doubling the size of its Columbus, OH, H2 operation. Now most readers are unlikely to think of Columbus as a hub of hi-tech activity, but the company apparently has had success in recruiting from the local large state university, and perhaps of greater interest from Carnegie Mellon University less than 200 miles away.

[Increasing workforce is the no1 tell-tale sign of a growing company. At such a rapid speed of onboarding new staff, we expect a rapid expansion in the top and bottom line of the company too.]

Currently, the consensus revenue growth forecast for 2022 is 42%. That is quite difficult to reconcile with the growth opportunities in just consumer lending as I think can readily be determined. And it basically doesn’t account for the auto lending opportunities that I imagine will be one of the major revenue growth drivers for this company next year.

The market for new vehicles in this country is around 17 million units, and the average loan for new vehicles is has grown to a bit more than $34k, while about 41 million used cars are sold each year and the average amount financed is around $21k. So, the market for originating loans in the US for new vehicles is about $435 billion (excluding vehicle leases) and the market for loan originations for used vehicles is probably around $756 billion. Overall, that is a target market just short of $1.2 trillion.

[Upstart unlocks new verticals and adds to its ever-expanding TAM. As a first-mover it has great potential not only to gain market share but to define it as well.]

The company’s valuation, in my opinion, doesn’t really reflect the growth prospects that I have tried to outline above, nor does it take account of the strong cashflow generation the company has been showing. While this is certainly not the only company using AI to underwrite personal loans and is unlikely to be the only company to use AI technology to underwrite auto loans, it does have a first-mover advantage which is perhaps even more important when it comes to machine learning than it is to many other components of the IT sector. The company’s CEO, Dave Girouard is dynamic, charismatic and has a notable track record of attainment. The company is well run as can be seen by its ability to achieve profitability and free cash flow early in its life cycle as well as its favorable unit economics even while it is growing and hyper rates and preparing to launch its service in a new market.

[I agree 100% and that is why UPST is my top holding by far. Just FYI Bert has released a Sell suggestion on TipRanks which contradicts with his comment that: *I have been an owner of the shares for some time, and when the shares dip, I add to positions for my investment advisory clients. I see this as a multi-year hyper-growth opportunity.* Maybe he just reduced his position and TipRanks automatically sends out a Sell signal. I don’t know.]

To close, as Jeff Keltner, SVP of Business Development at Upstart, put it: The future of all lending is coming through AI-powered technology and I think this is coming in the next decade. This was his bold statement at the closing of the interview with NAFCU (national association of federally-insured credit unions). Personally, I don’t find this statement bold at all. This is just the reality. Things are already moving in that direction, and I think it will be much sooner than a decade.

Just for disclosure, I bought UPST at $80, $120, $140, $160, $180, $200, $280, $300 and $330. Some might call this chasing the stock and find it risky as a strong pullback will have you in the red. I try to buy when I have some extra cash (with every paycheck) and also when there is a better value proposition. A better value proposition doesn’t necessarily mean buying at a dip but whenever new information adds to the existing story. As you can see, I made several underestimations regarding Upstart both in price and execution. So, every time I was wrong I added to my position. I hope I’m wrong again and they keep executing even better and faster. Then I’ll add even more as experience taught me — in a bad way — that buying on a justified rip is even better than buying on an unjustified dip.



Thanks for the post,which I read twice. Upstart is my largest position, by a wide margin. I would take issue with one point in your otherwise excellent write-up.

You wrote: Increasing workforce is the no 1 tell-tale sign of a growing company. At such a rapid speed of onboarding new staff, we expect a rapid expansion in the top and bottom line of the company too.

For those of us who remember Enron, will recall a traps workforce expansion as well. Before it’s demise in December of 2001’ Enron boasted a workforce of 29,000.


This was sent before I was finished. From Wikipedia:

“Enron grew wealthy due largely to marketing, promoting power, and having a high stock price.[citation needed] Enron was named “America’s Most Innovative Company” by Fortune for six consecutive years, from 1996 to 2001.[30] It was on the Fortune’s “100 Best Companies to Work for in America” list during 2000, and had offices that were stunning in their opulence. Enron was hailed by many, including labor and the workforce, as an overall great company, praised for its large long-term pensions, benefits for its workers…”

Not saying Upstart is an Enron, but rapid hiring/growth may or not be a good sign.



I don’t think it makes sense to compare to wildly different companies on the grounds that they both hired people…

What I do think is that for any high-tech or fast-growing start-up company, the ability to attract first class talent is absolutely critical. You can’t become a world-class company if you hire mediocre personnel, and you can’t grow at the rates Upstart is growing if you’re not able to fill your positions.

So the recent anecdotal evidence that Upstart is indeed able to attract talent is absolutely critical.

Another point, and this is where it becomes a self-fulfilling prophecy, is the enormous stock price performance. Talented people sign up with the likes of Upstart rather than IBM for the opportunity to grow with the company, and to be rewarded richly - in stock. Having a stellar stock performance will keep existing staff [very] happy/motivated, and attracts new staff to the company.

To me, in a world where everyone is chasing the same pool of top performers, this an enormously important point.

And by the way, it works both ways - if the business has been struggling and the stock price tanked, the stock may look ‘cheap’ to investors, but the company becomes a lot less attractive for potential recruits. Everyone wants to work for the winner.


I am not comparing companies because they were/are hiring like crazy. I am only saying that this is not much of a metric. If I thought the two companies were similar, upstart would not be my largest holding.


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Since the board first started discussing the Upstart announcement on the Columbus hiring spree, I have been slightly perplexed on whether this validates Upstart’s scalability, or is a negative. It was suggested that they were hiring many CS students, from the OSU program nearby.

• Are they hiring for building new core products?
• Are they hiring installation and support software engineers for helping clients integrate Upstart’s services? (Smaller-ish banks don’t have tons of extra IT capability.)
• Are they hiring sales staff to aggressively pursue marketshare?

(Maybe it’s all three.)

And yet, for any uncertainty I might have around their hiring, their client numbers are so small right now, I cannot imagine they don’t have a huge future, and are still on a massive growth curve, one even two years from now.


Nice write-up Pavlos, thoroughly enjoyed reading it!

I loved the analogy which Bert drew with the Winston Churchill quote from World War II.

In 1942, after the British led allied forces claimed one of their initial victories of WWII against the Axis powers in Egypt, Winston Churchill had famously quoted in a speech referencing the phase they were in in the bigger war - “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Drawing similarity to the current phase in which Upstart is in its long journey to conquer the World (even after the stock running > 10x since IPO last December), Bert wrote in his SA article - “My answer, to paraphrase the Churchill quote previously cited, is that we are merely at the start of the beginning. The past has indeed been prologue, I think the results so far this year should merely be viewed as a prologue as to what is to come, both for the company and for the shares.”

Sharing the same excitement about Upstart as others here :slight_smile:


Pavlos21 wrote: “Just for disclosure, I bought UPST at $80, $120, $140, $160, $180, $200, $280, $300 and $330. Some might call this chasing the stock and find it risky…”

But to quote someone who has demonstrated that he knows what he’s doing: “I tend to keep buying as the price rises, so my average price is often higher for stocks I’ve bought during the year.” – Saul, from his August monthly writeup (and probably others).

Also, regarding TipRanks showing a Sell signal from Bert, it was noted in the comments section of the SA article that that is just flat out wrong. TipRanks also got another Sell signal incorrect from Bert. So, I guess don’t trust TipRanks to get things right all the the time.