Thoughts on UPST numbers and guesstimates

There has been a lot of discussion on UPST of late. I personally added significantly to my already large holdings at around 191 price point a few days ago. Sometimes buying (adding) even after a run up is still buying value. I read on the board someone saying they wanted to wait due to the run up in price.

I wanted to look at the numbers more deeply and make some assumptions for next quarter and possibly the rest of the year.

Start with Q4 2020. Q4 20 revenues were 86.7 million and were reported to be 39% increase year over year. At that time forecasted revenue for Q1 2021 was 118 million and total year 2021 revenue was forecasted at 500 million.

Q1 21 actually revenues were 121 million. This represented a 2.5% beat of forecasted revenue. 121 m in revenue was a 90% increase year over year.

In Q1 they forecasted for Q2 21 160 million in revenue and increased 2021 yearly revenue to 600 million. The increase from 500 to 600 million was a 20% increase in forecasted annual revenue.

Then in Q2 they reported 191 m in revenue which was a 19.4% beat above forecasted quarterly revenue. I think the fact the previous quarter they raised full year projection by 20% and then the next quarter they beat by just under 20% is interesting. Possibly random but interesting.

Quarter   Revenue   Increase in revenue Q over Q     Forecasted Revenue
Q4 20     86.7    
Q1 21     121.0     +34.4                            118.0
Q2 21     191.0     +70.0                            160.0
Q3 21     ?         ?                                215.0
Q4 21     ?         ?                                223.0 (based on 750m)

They also increased 2021 revenue projection to 750 million which is a 25% increase over the previously forecasted 2021 revenue.

So for Q3 they are forecasting revenue of 215 million. This would be 24 million increase in revenue versus Q2. After Q1 they raised whole year revenue forecast by 20% and after Q2 they raised it another 25% (600m to 750m)from Q1 forecast (or 50% from original forecast of 500m at the end of Q4).

We know the Q3 quarter revenue forecast has got to be WAY low. The 24 million quarter growth forecast is lower than the increase in revenue from Q4 to Q1 (+34.4) and WAY lower than Q1 to Q2 (+70m). The fact they increased their annual revenue estimate makes me believe that the company believes the accelerated growth is going to continue.

Let’s use their numbers to look at what the they say about Q4 21 forecast. You have 750m (forecasted 2021) minus 527m (121m (Q1) + 191m (Q2) + 215m (forecasted Q3)) gives you 223m for Q4 21 forecasted revenue.

If you just used 70m in quarterly growth from Q2 to Q3 that would give you 261 million in revenue for Q3 or 36.6% Quarter over Quarter growth. They just raised overall annual revenue 25% previous quarter just had raised it 20%. This signals to me that 70m increase Q/Q is probably low and conservative estimate.

What would that look like for overall forecasted 2021 revenue growth?

750m (forecasted 2021) minus 57m (121m (Q1) + 191m (Q2) + 261m (guesstimate Q3)) leaves you with only 177m for Q4 21 forecasted revenue. That is highly unlikely.

So let’s make some more assumptions. Let’s just assume Q/Q revenue growth stays consistent at 70m. Using a 261m Q3 guesstimate it would give us a 331 Q4 21 revenue guesstimate.

That would put 2021 revenues at 904m (121+191+261+309). That represents another 20.5% increase over the 750m forecasted recently.

Question I have to ask myself is do I believe these guesstimates are realistic? I do in fact I believe they maybe a bit conservative.

The change in revenue growth between Q4 and Q1 was 39.6%. The change between Q1 and Q2 was 57.8%. Using the 70m of added revenue Q3 and Q4 would represent a change of 36.6% and 26.8%.

One concept often discussed on this board is the concept of valuation being difficult as it gets compressed by high growth. Many of the other names discussed on this board in my opinion do not have the value points that UPST is representing due to the rapid rate of growth this company is displaying.

I would welcome feedback on these numbers and thought process.


“I would welcome feedback on these numbers and thought process.”

I can only comment on the latter–the following caught my attention:

  1. “We know the Q3 quarter revenue forecast has got to be WAY low.” This is a key statement not adequately supported by what follows in the short paragraph. Wouldn’t management have a decent idea about the quarter given the timing of the call? Is it normal to understate by as much as you would like to see? Are there reasons why revenue may be stronger in September than in July? I don’t know but these are the questions that come to mind.

  2. Lots of guesstimation follows after that and all of it points in the desired direction. And it ends with " I do in fact I believe they maybe a bit conservative."

I’d say a good contra would be to look for reasons why Q2 might have been “too good” due to a particular, short-lived conjuncture. I don’t know about any of that, just commenting on the thought process itself. Specifically, I would look at consumption changes, from sentiment (last Friday reading) to Target and Home Depot traffic and transactions (all falling noticeably). I don’t know if any of this means anything, just stuff I would look at.

What worries me in the cascading threads on UPST is the extremely positive sentiment. After a stellar quarter, isn’t it better to look for what might go wrong rather than for what might go even better? Just so as not to be caught off guard?


I agree that this post regarding Upstart is perhaps overly optimistic and there assumptions that are not supported by data that is publicly accessible. Some of the logic is sound and I enjoyed reading it.

My take

We have no way of knowing if they are sandbagging and by how much. I don’t think they know as well. If you read up what other third-party analysts say about Upstart it is that they have trouble valuing the company because they are so different. They can’t effectively model it. This is why there is such a huge gap between what the public markets think the company is worth and the actual value. This is a very interesting and unique situation and I would recommend people be humble in their approach, especially after such a huge quarter.

What we Know and Don’t Know

Given what we heard on the last earnings call, direct mail is now a primary channel for Upstart. This is a channel that we will not be able to monitor through a third party, it’s not digital. Keep in mind that while they claim it got more effective, the optimization of direct mail can’t grow exponentially. It has a limit. Yes, it may get a bit better next quarter, but the safe assumption is they have figured out how to be effective in that channel, they have mastered it now. This means direct mail will only scale by adding more dollars. It’s important to understand that direct mail does not grow organically like web traffic. This means marketing spend will be a key metric to monitor. At some point with direct mail, they will reach saturation and the effectiveness will start to decline. I have no idea when that is. Given they are growing so fast it could be in the third or fourth quarter. No one knows.

I think all of this points out the important difference between a Sass subscriptions business and a fantastic but non-subscription business like Upstart and why it should be valued lower than a Crowdstrike or a Datadog. Upstart is now reaching a point where marketing spend will be the key driver of growth and if there is any interruption in it, the business will slow. The larger the business gets the more reliant they will be on marketing.


MAS4R and GolfCaddy,

Appreciate the replies. I am just using logic and looking at the numbers. They keep upping the annual revenue estimates 50% since beginning of year. They beat Q2 forecast by 31 million or +19.4%. When a company is growing rapidly its hard to project future revenues by the management of company, analyst, investors, etc.

Here is what they said when asked what may drive Q3 growth.…

Ramsey El-Assal – Barclays Investment Bank – Analyst

OK. I wanted to ask about conversion rates. That seems to have been a pretty significant driver of the beat this quarter, as well as in the past quarters. Could you talk about the pipeline of improvements that you have maybe in the wings there? What should we expect in the third quarter? And sort of what is baked into guidance in terms of that conversion rate?

Dave Girouard – Chief Executive Officer

Randy, this is Dave. Like always, we kind of have a significant backlog of projects that we’re working through that potentially improve the funnel conversion. I mean, it’s kind of the core way we grow, is improvements to our models or some of the technology that helps borrowers get through our funnel. And we continue to have a significant number of model upgrades that we expect and such.

We don’t always know exactly the – exactly what the impact will be of the scale of it. So I think that’s, on balance, reflected in the guidance, which is a continued pipeline, some smaller things, some that have potential to be larger impact. Some are related to approvals and rates offered to consumers. Others are off related to friction and reducing friction.

So there – it’s a little bit of a mass, and we don’t have anything particular to point to other than to say the team is working really hard to get upgrades and improvements into the model that are going to make the consumer product better and it’s going to make Upstart’s business more successful.

I would imagine that the new variant of Covid may be impacting spending at Home Depot and Target?? But that is a guess on my part. Maybe it is a start of a recession and that might cause the stock market to fall and take all stocks with it? However I do not worry about over all economic trends typically when I make an investment (and when I do I usually am wrong) as it is more about timing over all market.

I do not mind talking or discussing what might go wrong. I think for me it would be something goes wrong with the AI program that leads to loans not performing as predicted, but all data currently does not show this as being an issue. If the investment thesis were to change for the company in some sort of fashion I would sell quickly.

I obviously see a long run way for the company with auto loans coming online in the next fiscal year. If for some reason they were to slow growth as they move into auto loans, it would be a red flag for me.

Going back to my guesstimates. So company ups yearly revenue after one quarter by 20%, then the next quarter by another 25% I use estimates that increase the revenue for the next two quarters that would lead to another 20% annual increase and I am overly optimistic? I think that is conservative. I personally think they might do a billion in revenues this year. I base this solely on what they have done the first six months of the year and the rate of growth they have had.