Reporting Tonight: UPST

Its Show Time for UPST!

I am one of those people who remains invested in the company; although, rather than chest high I am more like mid-calf. To be fair I am not sure it makes much difference and the reason is simply that UPST is one of those companies whose stock could go up 10-15 times from here or just nose over and plummet to zilch.

Lots of folks got out of UPST when Saul did and odds suggest that getting out of a stock when Saul does is moderately the better play. The reason Saul mentioned that he abandoned ship on UPST was due to not understanding it; which, to be honest, puzzles me a bit. Now - I am not gonna attempt to cover-up my lemming like behavior and/or claim I didn’t reduce my own UPST stake due to Saul’s revelation; however, it did occur to me that everyone seemed to understand the company just fine when it was kicking butt and taking names. You see the dichotomy here - the beating heart of the investing dilemma here? That said, the good news for me, which remains to be seen, is that I never actually understood all the intricate working parts of the company anyway. And since I couldn’t much have had less understanding of UPST than I already did it washed over me that in that particular regard I was flat out even keel - dead even, so to speak.

UPST is something of a different animal though, isn’t it: how many companies come along that really have the opportunity to change and entire industry? And since the company is still biting off pieces of the FinTech pie in big chunks I decided I would just sit a spell. So here I am.

The last time UPST reported its numbers they were once again eye popping and the company appeared to be making steady progress on their storming of the established financial castles. As a reminder, here is the Press Release to that report:…

One Article Headline Blared:

“Upstart stock soars after Q4 earnings beat, strong guidance, stock buyback”.

Now thats a happy Trifecta if I ever saw one!


  • Revenue. Total revenue was $305 million, an increase of 252% from the fourth quarter of 2020. Total fee revenue was $287 million, an increase of 240% year-over-year.

  • Transaction Volume and Conversion Rate. Bank partners originated 495,205 loans, totaling $4.1 billion, across our platform in the fourth quarter, up 301% from the same quarter of the prior year. Conversion on rate requests was 24% in the fourth quarter of 2021, up from 17% in the same quarter of the prior year.

  • Contribution Profit. Contribution profit was $149.5 million, up 261% from in the fourth quarter of 2020, with a contribution margin of 52% compared to a 49% contribution margin in the same quarter of the prior year.

Here was their Guidance for Q1 2022:

For the first quarter of 2022, Upstart expects:

Revenue of $295 to $305 million
Contribution Margin of approximately 46%
Net Income of $18 to $22 million
Adjusted Net Income of $50 to $52 million
Adjusted EBITDA of $56 to $58 million
Basic Weighted-Average Share Count of approximately 84.3 million shares
Diluted Weighted-Average Share Count of approximately 95.9 million shares

Here are a few quotes from the Conference Call:

  • As the rare public technology company with triple-digit growth and profits, we’re confident that an economy and market in transition plays to our strength. I’d like to start by reflecting on 2021, which was a remarkable year for Upstart. We grew revenue from $233 million in 2020 to $849 million in 2021, while generating net income of $137 million. And with the fourth quarter surge, we’re now at more than $1 billion in revenue on an annualized basis. 2021 will be remembered as the year AI lending came to the forefront, kicking off the most impactful transformation of credit in decades.

  • To gain some perspective on what Upstart achieved in 2021, we looked for another company in the public markets with our combination of scale, growth and profits, but we were unable to find one.

  • Our profits are neither marginal nor ephemeral. We generated more cash in 2021 than we burned in our entire eight-plus years as a private company.

Ok so now that my memory is refreshed what should we savvy High Growth investors be focused on in today’s report? Well thats easy courtesy of a SA UPST Earnings Preview:…

But thats just the start and there are specific things we ought to be eyeballing:

You can read all about it in this SA article titled: Panic Time:

My personal view of the moment is simply to let it ride: as the company CEO stated this is a multi-decade mission and one report - one way or the other, probably isn’t going to make that much of a difference in the long run - that is, unless they really bonehead it up. But even it the report is wonderfully fabulous it represents only the first half of the game - while the second half consists of the Guidance. And in this take no prisoners market unless things are overwhelmingly precise and perfect odds are we are getting a haircut.

In about an hour or so we’ll see I suppose. Ought to be a good game and we have comfy 50 Yard Line chair back seats.

All the Best,


That dang Guidance!…

All the Best,


they actually reduced full year guidance from $1.4b to $1.25b

granted the macro environment is not their doing or fault, but they maybe should have factored it better in their Feb ER CC guidance.

like it or not, I take this as a knock on UPST mgmt, in terms of trust. Not that they did anything purposely wrong, but if you change guidance down after 1Q, it speaks to:

  1. purposely pumping (misguiding shareholders)
  2. poor handle on business outlook (incompetence)

Either one is bad.
Stuck with my shares for now…see if they bounce a bit. Rationale would be that even at a drop in guidance, they appeared fairly valued, provided they grow. If they keep reducing guidance in subsequent Q’s, then all bets are off.



So the big question to me is what is their path for growth. With the new annual estimate of 1.25 Billion for FY22 and already having hit 310136 in Q1 and forecasting 305000 in Q2 they will be more than halfway to 1.25Billion and so are modeling zero quarterly growth for the rest of the year. Just guessing, but I would bet their FY22 Q4 will look an awful lot like FY21 Q4

At this point, with those numbers its hard to classify them as a growth company and for sure not a hypergrowth company. They are profitable and so maybe like Dreamer is saying… fairly valued. They show a gigantic TAM… but it seems like they should be growing with that as the case.

Their guidance for the year would have to be completely flat to stick under $1.25B.

Conditions for their products (both average loan value and loan volume) would have to hold slightly higher than flat to miss that number (almost no growth)

9% up revenue
18% increase in loan size (I think this is a going to be lumpy impact with no trend based on the Q&A)

51% contribution margin (ex auto)
S&M - 16% (higher than expected due to Auto)


P/E of ~70 at AH pricing. ($43/sh)

Analyst Questions:

Conversion rate: (lower than model)

Sanjay -

  1. Rates going up, bank rates go up, delinquencies reverted (but is now stable)

  2. Recession and reduced demand

Asset Backed Securities

  • What is the current demand environment? Do you foresee residual liability coverage to support?

Sanjay -

…Loans funded from CU are not impacted.
Institutional buyers are more impacted (demand higher yields)

…Product volume sent to ABS markets has plummeted. UPST balance sheet is not impacted and retains no risk.

Last 60 days are the delinquencies triggering an ABS threshold? (impact future funding) Are you willing to place warehouse liability on the balance sheet.

…Delinquencies have renormalized to pre-pandemic levels. February at expectations.

…Charge-offs are the trigger not delinquencies. Residual holders get locked out, but bond holders do not (priority funds flow)

…Used balance sheet for the last couple quarters to clear products. Need improvement in platform to be more nimble. As a result gaps may be present (UPST must step in when this occurs). Platform must respond to changes in risks and rates. Target is to minimize or eliminate this link between UPST balance sheet and resellers.

Embedded auto loans and personal loans size changes -

Dave -

…We expect less volume than 3 months ago. Interest rates, risk premia pass on to customer several 3%+ change.

Surprised that UPST is using the balance sheet for loans (since UPST is a platform, not a bank)

…Dave - price discovery happens in the market. When the process is not fluid, nimble at rapid rate changes, we had to step in. Attention will be put toward that end of platform to eliminate the single digit % that we had to hold on the balance sheet. (mostly Auto)

Are spreads widening? Auto volume doing down for '22. How are you modeling?

…Dave - Loans at margin cannot execute for consumers. Remaining loans are priced higher, which reduces demand. Price sensitivity means less volume as rates go up.

Auto ReFi: New product with rate sensitivity. Uncertain how volume will happen with new rate trends. Hard to predict.

On the funding side:

  1. Balance sheet - it’s not going to be a long term thing, but how much will UPST hold on the balance sheets?

…No specific target. Spend $$$ on R&D or support core business. Need to find market clearing rates. UPST pays the gap. Most spending is on R&D (Auto, currently)

  1. 50 new bank partners - where are the sign ups happening?

…Best quarter ever in sign ups for partners. Pipeline adds 1 lender per week.

Guidance - revenue adjustment is all transaction volume or is it take rate?

…It’s all transaction revenue changes.

Lower demand from rising rates, lower revenue. Lenders tightening up criteria to restrict loan offerings?

…No. Banks and CU are doing nothing yet to restrict. Some are still opening up.

…It’s really investor expectations that will relate to annual revenue coming in less.

Will UPST sell loans into market or hold them?

…Held for Sale loans will be sold as market conditions allow. Preference for liquidity vs loans on balance.

Recent change to loan modification policy. Loan applicants have forbearance options into delinquency applied?

…Charge offs are 10-12c on the dollar. Forbearance provides a much higher final return. loan holders must apply but UPST prefers to not charge off.

$30MM tailwind for delinquency rates when rates were favorable. How would you characterize it today?

…Deprioritization in our business model. Early days we consolidated those into balance sheet. For '20 and '21 and going forward, it’s about the economy and mark to market each quarter.

…Rates are .25% higher than last year. if rates continue to go up, we’ll mark to market. Not meaningful to the overall business.

…Q1 - R&D loans were almost all Auto, going forward, depends on automated platform reaction to clearing rates. Need to get platform pricing to react in real time.

18% sequential growth in average loan amount. But $9K loan amount is still much less than the $13K where we started '21, can UPST get back to higher loan amounts?

…NO. Smaller loans will be norm unless several prime banks sign up with higher consumer capacity.

$600,000,000 in loans on the balance sheet. Is that the high water mark?

…No. Continued R&D requires UPST to hold loans to stabilize the business.

What can the platform do for lower end consumers? How does that impact market share capacity?

…Each lender is state or nationally chartered and have different rate caps.

…We don’t support any lender with rates over 36%. 3 months ago we may have had several people in customer set that would be approved near 36% who cannot get a loan (rates don’t match risk return today).

Take rates and downward pressure on conversion. Will we see improving unit economics? Macro environment dictates.

…Loans are showing signs of underperforming at the lowest FICO equivalent. What does that mean for the entire portfolio looking forward? '21 originations and beyond.

…Stimulus removal impacted all loans across all levels in the customer risk ratings. UPST separation is much broader than FICO. UPST is stable and performing according to customers (banks and CU).

…Timing is the real relationship. Investor sees 12 vintage quarters. In those examples, late '19 overperforms dramatically (2x IRR) and then 2-3 vintages at '21 (q2-q3) underperformed by 20%. Transient effects are not permanent.

Will student loan forbearance impact delinquency and charge offs?

…Yes. it’s another example of stimulus reduction, but most stimulus has been unwound.

Any demographic impacts that would favor impacts from student loan borrower forbearance ending?

…No. No skew specifically to younger borrowers.…


Sorry. It appears my transcription of Q&A got stuck on my response on growth.

There are significant challenges for them at this point, but their current AH valuation provides ample room to run for new money.

If rates keep moving against them and they do not fix their platform, they are going to be bleeding cash as they continue to hold loans on book. Although they state (currently) these quantities are not significant. I would think this will apply to each new product they go after.

As a result of this impact, I think they may slow new product launches if they retain too many loans. This is the true risk to UPST: Will their war chest support R&D, market conditions, and new product rollout during the pilot stages.

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The way I see it - given the economy, they are in the position of trying to paddle upstream against a strong current. The CC seemed a little downcast to me and I major problem for me is the large number of loans they are now carrying. Risk rears its ugly head.

I am leaning toward taking the loss and finding a better place for the investment. Sometimes you have to be a little ruthless and in this case rather than try to second guess what they will actually do the rest of the year just take their word for it and move on.

Haven’t decided fully yet but am leaning that way. As someone mentioned above - if you project flat growth you have no growth and therefore cannot be a growth company. And thats supposed to occur over the rest of the year with a glimmer of hope on the horizon with auto loans.

Management has placed doubt in my mind and a confused mind says no.

Gonna sleep on it.

All the Best,


A conclusion in three parts:

Part One:

First Lawyer: There is no evidence for a murder here!

Second Lawyer: You mean except for the dead body?

Here we have three bodies: UPST, the Economy, and what’s left of your investment.

Part Two:

While UPST can still be THAT company that disrupts an entire industry - it has a whole bunch of headwinds created by an economy in ruins with no real end in sight. Not really the company’s fault but what difference does that make? If your neighbor backs up over your cat, just because it was an accident doesn’t help the cat at all: it’s still dead.

Part Three:

When the current economic storm blows over - and it most certainly eventually will, UPST might be able to get back on track. At that point, there will be plenty of time to get back into it for a glorious ride to infinity - or something like that.

For now: Sell and place the remaining funs into an investment with better odds.

Just my humble opinion.

All the Best,