Sold UPST: Monkey is only human

Hello Friends,

It’s been a while. Fell asleep in my jungle hammock and just woke up.

We all know about biases, including the sunk-cost fallacy and anchoring and wishful thinking, etc.

I’ve been going back and forth about Upstart for way too long, justifying selling it, buying it back, and selling and buying back and keeping it with ideas like “asymmetric opportunity” and “risk-reward ratios,” etc.

I don’t think it’s dead, but I recently sold it despite the massive investing losses.

My fundamental reason for selling is that the money needs to be invested in my best ideas after such brutal beatdowns, and when Upstart reports soon, the news will either be bad or very bad. Only if the news is slightly bad might the stock pop, but I don’t want to play those games when I could own more long-term beasts that are already slaying it, macro or not.

I only write this to confess how hard it is to overcome our brains. And how painful it is to admit “I should have sold this a long time ago, like Saul and JonWayne and Bear and StockNovice way back when the first piece of evidence were clear.” Hope is maybe the hardest thing to let go of once it gets its claws into you. We are not reasonable beings when that happens.

Monkey has been trading bananas for stocks for a long time now, and even all these years later, these kinds painful of experiences remain a real possibility for all of us. Remember you are not alone, and a correct decision is around the corner. Make it today, and then make more of them and the losses of the horrible ones will be eased from memory.

Good luck to Upstart holders of today and maybe we’ll meet again as owners down the road if some of the Hope turns to reality.


@7flyingplatypus on Twitter


I think that is a good decision. I cannot bring myself to sell UPST.
My first buy was $256. I have dollar cost averaged and my cost basis is around $25.

I think they will go back up to $200+ but it will take 3+ years. However, there is a >0 chance that they don’t survive this. We will know tomorrow. It will get worse before it gets better.


Results were bad and will get worse. However, after listening to the call, I think they are going to survive this.

Arvind Ramnani

Hi, thanks for taking my question. I just had a couple of questions. One, just as you think about the next kind of 12 months, have – what are some of the downside scenarios? Like, I mean, if the macro gets a lot worse, would you expect like kind of further deterioration in your business just given sort of the strong exposure you’ll have to the macro?

Dave Girouard

Sure. Arvind, well, look, no doubt, any business looking to the future of the economy, there are downside scenarios for everybody. We’re not different than that. I mean we’re a fairly simple business in many ways that we have fixed costs, and then we have contribution margin to offset those. And certainly, if macro continue to deteriorate significantly, that would probably translate into lower volumes in our platform. And at some point, we will look at our fixed costs and ask whether we can afford that.

So our first goal is, of course, retain solvency in the sort of solid footing the company is on. We have a large cash balance. We have relatively low fixed costs, and that’s really helped us all through our existence. But – so we don’t have any fear other than, look, the thing we want to keep doing and thus far, we’re able to do so, is investing in the products.

Certainly, there are scenarios we could imagine that are so bad that we would have to cut back investment or pause products, et cetera. But we don’t see that today. I think today, we have enough volume and enough contribution margin to keep optimistically investing for the future, and that’s what we would hope.

Arvind Ramnani

Right. And as you think of your kind of, I would say, kind of existing cash burn and sort of projected cash burn in which country you’re making adjustments with – just on some of your expense line, when do you think you may need to go sort of raise kind of additional capital, whether in the form of equity or debt?

Dave Girouard

We don’t see any need to do that, Arvind. And honestly, our cash burn today is quite small even in the very constricted position we’re in. I mean, I think our volumes are pretty dramatically lower than they were, yet our cash burn is fairly minimal. So we don’t see a scenario where we have to raise cash. As Sanjay said, we have over $800 million in cash as well as loan assets on the balance sheet. So that’s just not something we anticipate at this time.

Arvind Ramnani

That’s perfect. Thank you. Go ahead.

Sanjay Datta

I was just going to maybe put some quick back-of-the-envelope numbers to that. Our cash sort of fixed expense burn across payroll and OpEx every month is about $30 million. And even at zero origination scenario, we’re getting a servicing stream of revenue that’s about $15 million. So there’s sort of – maybe the sort of $15 million delta every month that we have to rely on contribution margin for to cover. So that’s sort of like on a downside scenario where the gap might be. And as you saw, we’ve got about $800 million in total cash on the balance sheet. So as Dave said, that can take us for quite some runway.


I had held a very small position, just “to keep an eye on it.” But, I decided I could watch it at a distance and sold my small position, fortunately, just hours before the quarterly earnings report.

Upstart has been an incredibly frustrating investment. I still have confidence in their technology. I still feel that it’s highly unlikely that they will be disrupted by a competitor. I still think the notion that one of the big banks will develop similar capability is not viable (why would they invest the time and development dollars when they can get the capability today quite inexpensively)? And even in the unlikely case that Chase (or whoever) did develop such a tool, what would be their motivation to share it with competitors? I could go on, but I won’t. All of that stuff is positive and works in favor of Upstart.

The problem is that Upstart’s partners aren’t using their service so there’s no reliable source of lending funds. And the macro-economic environment sux (that’s a technical economic term).

So yeah, I’ll watch from a distance. If - - - when the economy turns around and Upstart’s business gets off life support I’ll likely return. But, I must admit, I’ve held - even a small position - too long.


The stock price rose and is already near my cost. However, I think this is temporary. UPST has ~4 bad quarters in front of it. My prediction is that in 3 years, UPST will be trading around $200

Here are some back of the envelope “bad case” scenario

My back of the envelope calculation


  1. $30m operating expenses / month = $360m / year
  2. Incoming $80m loans on balance sheet / month = $900m / year. With *10% default (which is very high or low ?) results in ~100m / year loss. Management is deliberately throtteling the funnel.
  3. $700m loans on its books. With * 10% default results in ~70m one time.

Revenue (worst case):

Fee income $15m / month = $180m

Cash Burn:

Worst case cash burn: $180m - $360m - $100m = $280m / year (+ $70m one time reduction).
They have $830 million of total cash and ** $431 million in net loan equity.

  • you can toggle the 10% up or down

If I am not mistaken, these cash flow calculations are for cash flow from operations. The key number, for me, is "the incoming $80 million loans on balance sheet per month = $900 million per year. Upstart got that $800 million cash on its balance sheet from borrowings. Why are they and we so confident that UPST will have access to borrow a $ billion a year to fund the purchase of these loans. What am I missing?



That is not the key. The main question is: Does their ML model work better than old school FICO.
Based on the data they are presenting, it does perform better. It is also getting more accurate.
Banks will jump through hoops to sign up to them and pick up these loans if they are right. Why wouldn’t they ? However, if they are wrong, they will shrivel and die.

My view is that their models are indeed performing better than FICO but the sample size is still small. Banks are not convinced yet and securitization is slow. UPST is using (has to use) its own capital in some cases for R&D ($450m) and some cases temporary ($250m) till it finds a buyer. The question is about the runway.


From a high level, banks make money off the “spread” between the interest rate they pay on deposits and the interest rate they make on their loans.

Lending is cyclical because as the economy goes into a recession interest rates invert (the 10-2 spread is currently at 50 basis points for example). When interest rates invert, banks stop lending.

So, at some point Upstart may likely reaccelerate but the question is when.


I was kinda hoping this thread would die out on its own, but let’s please end it now. Upstart is a turn-around play, and no longer appropriate for this board.

Please remember that turn-around plays are long shots and the upside isn’t always as high as you think. I have a few Peloton shares, but I do NOT expect it to become a $50b company again – maybe ever. A lot of things were valued like SaaS in 2021 that probably shouldn’t have been and likely never will be again. I’m sizing my Peloton bet accordingly (2% or less).