I haven’t come across this author before but he wrote an excellent review of UPST’s call. Here’s the link:
https://stockmarketnerd.substack.com/p/upstart-earnings-revi…
Standard text is quoted direct from the article, my emphases are in bold or italics.
Begin Quoted Article
7 banking partners have now signed up for Upstart Auto Retail (formerly Prodigy) vs. 5 last quarter.
“Last quarter I told you that one partner eliminated any minimum FICO requirement. Four Upstart bank partners have now dropped their FICO requirement. In just a few months this has become a trend.”
And just a month ago we were trying to find evidence that maybe, just maybe, a second bank had dropped FICO requirements!
59% of loan applicants approved by Upstart’s partners without any FICO requirement are minorities which is well ahead of the national mean.
On a philosophy shift/broadening:
Upstart is focusing more on serving users across the entire credit spectrum as it realizes it can provide better loans for high-credit constituents as well. The company had originally anticipated its value proposition mainly expanding to the under-banked. That is now changing. This broader focus is expected to improve the company’s marketing efficiency making things like TV campaigns productive.
Well, we’ve been discussing this for a few weeks now. UPST has always softly hinted at this deep down in some of their filings but it’s always just been some distant “wouldn’t that be cool?” goal. I’ll have to wait for transcripts to find the exact wording used on the call today, but I’m excited for this. I do think that serving the under-banked provided a really special moat that no one else could breach, but this does point to a massively expanding market for UPST that will only help in the future. If UPST can dominate the prime market the way it’s dominating the hidden prime market, then we are really still in the incredibly early stage of this opportunity.
On Upstart auto:
“Upstart’s auto retail product is on track to repeat the funnel gains that the personal loan product has delivered.”
Remember that the auto loan TAM is roughly 6-8x the size of the personal loan TAM. UPST is now adding 1 dealership rooftop per day and grew their rooftop count 46% sequentially, an acceleration of the 23% sequential rooftop growth seen in Q2Y21 and on par with the 46% sequential rooftop growth in Q1Y21. Total UPST dealership rooftops are 291 out of the ~18,000 so this is still early innings for UPST’s auto opportunity. I believe they said we can see significant contribution to topline revenue from auto loans in 2022. And if they’re on track to repeat the funnel gains from personal loans… oh man, that’s going to be wild!
On new product plans:
Upstart is building a small loan product that will integrate with its partners and feature “bank-level APRs.” This will expedite the pace at which Upstart can include the under-banked in the financial services world. Girouard called interest in this product from partners “off the charts” and it will debut next year.
Upstart is also now building a small business installment loan product. Which is also “in high demand from our partners” according to Girouard. This will debut in 2022 as well.
Upstart plans to introduce a home mortgage product later in 2022. In 2001 compared to 2015, 1 million fewer mortgages were originated – Girouard called this the “missing million” and plans to pursue this opportunity with a new product in the near future.
“We feel very confident that we can better underwrite mortgage applications for a large portion of consumers.”
Nothing but fantastic news. I believe we were all hoping for a mortgage product to be debuted maybe in 2023 or 2024. 2022 is a pleasant surprise and the development of all these new products definitely explains the rapid headcount growth we sleuthed out a few months back. I believe the SMB installment loan and the small loan products are news to most of us as well.
End of Quoted Article
The other comments in the article focus more on the financial numbers, which in my opinion were all very good and don’t require further commentary from me. This was a great quarter, and while I think we were all hoping for an acceleration like last quarter, I think the company is firing on all cylinders, rapidly expanding and crushing its market, and introducing new products to help sustain its growth and moat long into the future.