# UPST earnings

So accoding to guidance they exxpect almost no growth from this quarter to next and 4th?

Next quarter 215 mio revenue
And in the 4th quarter 219 mio revenue

Is there really a slowdown in demand?

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So accoding to guidance they exxpect almost no growth from this quarter to next and 4th?

Next quarter 215 mio revenue
And in the 4th quarter 219 mio revenue

Is there really a slowdown in demand?

They guided to \$160M last quarter, and raised guidance to \$600M for the year, or about \$160M each for Q2-Q4. So essentially that was for zero growth the second half of the year.

\$121M, \$160M, \$160M, \$160M = \$601M

Those numbers are now, based on reported Q2 and guided Q3/Q4 numbers:

\$121M, \$194M, \$215M, \$219M = \$749M

In one quarter, they beat Q2 by \$34M and raised Q3 and Q4 by \$55M and \$59M respectively.

This is not SaaS, so there’s much less of a guarantee, but you could have said the same thing after last quarter’s guidance.

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If I’m calculating it correctly, I think UPST has a forward P/S ratio of about 16. (assuming a stock price of \$160 - what it currently is AH).

Can someone help explain to me how that’s possible with their growth and profitability?

Seems like it should be at least double that.

What am I missing?

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If I’m calculating it correctly, I think UPST has a forward P/S ratio of about 16. (assuming a stock price of \$160 - what it currently is AH).

Can someone help explain to me how that’s possible with their growth and profitability?

They have no recurring revenue (or very immaterial amount). The p/s should never be where the SaaS cos trade at relative to current growth.

Bnh

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“They have no recurring revenue (or very immaterial amount). The p/s should never be where the SaaS cos trade at relative to current growth.”

Thanks for responding. But it seems like there are companies without recurring revenue that have much higher P/S and not as good growth.

Shopify forward P/S is 30.
TTD forward P/S is 26.
Unity is 23.

Seems like UPST should be in the same league as those at least. They don’t have recurring revenues do they?

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I believe there is a recurring revenue component to Shopify:
https://www.sec.gov/Archives/edgar/data/1594805/000159480521…
Subscription revenues appear to be 25-30% of revenues, e.g.

Unity clearly mentions subscription revenues as a strong factor in their success.
https://www.sec.gov/ix?doc=/Archives/edgar/data/0001810806/0…

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So far this is by FAR the best earnings report of my companies this cycle. And it won’t be possible for my remaining companies (SNOW, ZM, CRWD, DOCU) to top this UPST report.

I had been building my position for several weeks and it was up to 14.3% (plus some options trades that were hoping for a blowout result) going into earnings. I can tell you that I won’t be selling a single share, even if the price exceeds \$200. The numbers are out of this world, exceeding even ZM numbers from 2020. UPST achieved this result (and the Q1 result) in the face of headwinds. The headwinds are a lower demand for personal loan products due to the government stimulus support. Imagine what the result could have been without this headwind! The CEO didn’t want to speculate when asked this question on the earnings call. The market that UPST is in is enormous so there’s plenty of room to grow. In 2021, revenue from auto loans will kick in. Saul mentioned that he thought the analysts seemed flabbergasted by the results. I think UPST management was also caught off guard a little…such they’ve know these results for a few weeks so they didn’t seem surprised on the call. When a company is growing this fast, it’s incredibly difficult to forecast, even one quarter out. The \$215M revenue guide for Q3 must have a lot of conservatism in it because they just don’t know yet how big the number will be. So they must be conservative. It very well could be that UPST hits \$1B in FY2021. I bet they will. On top of all this, just look at how profitable the company is already. I would challenge anyone to show me another company that’s growing this fast and is also profitable (not just non-GAAP but GAAP too!). UPST needs to invest heavily in growth but they can’t possibly spend enough to not be profitable. UPST is likely to be the most likely of my positions to 10x its share price the fastest. Definitely not selling a single share.

GR

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If I’m calculating it correctly, I think UPST has a forward P/S ratio of about 16. (assuming a stock price of \$160 - what it currently is AH). Can someone help explain to me how that’s possible with their growth and profitability? Seems like it should be at least double that. What am I missing?

What you are missing is that people can’t believe it. Don’t forget that we watch the interviews with Dave Giroud (sp?)and Paul Gu. We research the company with crowd sharing of ideas and insights and doubts and explanations. We have a decent idea what is going on.

Think of the poor analyst who is assigned fifty companies to follow, and doesn’t think about Upstart from one earnings report to the next. He hears all of a sudden "60% revenue growth sequentially… " and he thinks “I better be cautious. There must be something wrong. I couldn’t have heard this right. This must have been a one time big deal or something. Nobody grows 60% sequentially, etc, etc.”

The other things you are missing is first, that it was recently the end of lockup for the venture capitalists who want to take their profits and reinvest in new startups, simply because that’s their business model, and second, that there are desperate shorts out there that have fought to save their hides by trying to push the price down, and finally, you have to remember that this is NOT a SaaS company with guaranteed revenue, and 85% gross margins. (But, on the other hand, none of our SaaS companies are growing even half as fast.)

best,

Saul

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Question:

Which share count do you use?

From today’s press release
Basic Weighted-Average Share Count of approximately 78.0 million shares
Diluted Weighted-Average Share Count of approximately 94.9 million shares

In Chris’ example, a \$160 share price, on say an \$800m fy21 revenue for those 2 scenarios is:
Basic = 15.6 P/S
Diluted = 18.9 P/S

Either way, compared to so many high multiples right now, that appears fairly cheap.

I still have a tough time understanding their gross margin, as they use “contribution margin”.
Previously I believe I saw others mention this was calculated at seeking alpha or elsewhere and the GM% was pretty high, but not sure what is accurate there.

So once we know which share count to use, and what the GM% is, it will be pretty easy to compare to the DDOG/DOCUs of the world.

Dreamer

Hi Saul, I am new to the forum and have a lot of catching up to do. UPST stock had big swings over the past few months. Would it be prudent to wait for a pull back or a new floor is in with the latest earnings? I’m feeling a bit of FOMO. Also, do you view this as a long term buy and hold or a momentum play? I will likely start a position and do DCA.

Thanks

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Upstart CEO Interview from today on Bloomberg (at the 30 minute mark)

https://t.co/fGbEIx2Be5?amp=1

One thing stood out for me

• CEO feels, govt. stimulus is a headwind for demand for credit - credit card balances are at lowest in a while and savings rate are up
• Yet UPST has been able to grow at this rate in this backdrop

-Pie

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Here is what I use to calculate GAAP gross margin for UPST:
First, we shall take the data from official Q2 report:
https://www.sec.gov/Archives/edgar/data/0001647639/000164763…

Three Months Ended June 30 2021:
Total revenue - 193,946
UPST put “Cost of Sales” under “Operating expenses” (similar as what TTD does) which is
Customer operations - 24,164

So GAAP GM = (193,946 - 24,164) / 193,946 = 87.5% (I think their Non-GAAP GM is higher but it was not reported and cannot find the clue)

For the ACCURATE share count, it can be found out from the same table as well, which is 94,802,123 (Weighted-average number of shares outstanding used in computing net income (loss) per share attributable to Upstart Holdings, Inc. common stockholders, diluted)

BR
Zoro

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Which share count do you use?

From today’s press release
Basic Weighted-Average Share Count of approximately 78.0 million shares
Diluted Weighted-Average Share Count of approximately 94.9 million shares

LifeOfDreamer,

There’s no silver bullet for valuations. If you want to track valuations, I think you just need to be consistent with whatever your approach is.

In my case (and by the way I’m still learning and not a CFA), I’m doing my valuation calculations on a fully diluted basis, and have a spreadsheet full of them. I think this recent MF article is a good primer on shares outstanding and the difference between basic and diluted - https://www.fool.com/investing/stock-market/basics/outstandi…. As the article points out, “The fully diluted number of shares indicates how many outstanding shares there could potentially be if all existing equity instruments were converted into common stock.”.

If you really want to compare/contrast, its most common to compare valuations within the context of like-companies (eg. comparing Cloudflare to Crowdstrike is much more meaningful than comparing Crowdstrike to Upstart). You can certainly do a cross industry comparison (in fact I have done similar compares myself), but if you do keep in mind that you have to take many more things into account when doing so (eg. gross margins, recurring revenue, etc could be drastically different)

And then of course there’s tracking a P/S ratio on “trailing twelve months” aka (TTM), or tracking on a forward basis. And a lot of times people won’t tell you what that forward basis is, or whether it makes sense or is rooted in any logical deduction. Forward revenues could be +1 Quarter if you only know the next quarter guide, it could be plus whatever quarters are left in a company fiscal year, it could be based on the average sandbagging a company does, etc. (and honestly, too often the numbers are thrown around without something providing specific details on how they got to those numbers).

So, probably best to just be consistent. Something I want to work on too when posting on this board to do a better job of being explicit so that there’s no question from the reader how I did the calculation.

PS. For what its worth, right now, after today’s earnings, @ \$160/share UPST has P/S(TTM)(Fully Diluted)=32.45. Forward P/S is whatever you say it is, you just have to back up what you are using as the “S” and what the “Forward” is.

-Chris

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Sometime ago I expressed my enthusiasm for Upstart by posting that if I were restricted for some reason and were only able to hold one position, it would be Upstart.

It may come as no surprise that I took considerable heat (off board) for that comment. Several folks just couldn’t help but to tell me what folly that would be and that I, as a long time board member should know better, etc., etc., etc.

Well OK, as Broadway Dan recently pointed out, hyperbole is an open invitation for criticism. Even though there is nothing that imposes a constraint on me to own but one company, I most certainly could hold only one position. At the time I posted that sentiment Upstart was my third largest position. It had been my largest position for a while, but due to stock price erosion while other stocks increased it fell back to number three.

However, with earnings soon to be announced I was very confident that Upstart would have a blow out report. I never imagined it would be this good - as Jonwayne put it, WOW, really, I mean WOW!!!

Yesterday, I sold some call options that had grown a great deal as I bought them when all our stocks were in a deep trough. I put all the proceeds into Upstart which put it back in the number 1 position in my portfolio by several percentage points.

True, this company does not have the guaranteed recurrent revenue we have from our SaaS companies that sell subscriptions. But, just looking at my own borrowing history, I went back to the well several times. Though my loans came from refinancing my mortgage, the principle is the same. I don’t have statistics to back it up, but I’d venture that most folks that take out a loan, take out another and another and another . . . If you’ve got a bunch of credit cards which you may have taken out in order to take advantage of a low introductory rate or some other marketing lure, there comes a time when it makes sense to consolidate all that debt into one loan. There are myriad reasons that people borrow money. Given the opportunity to consolidate and get better terms in the process, most people will take advantage of that opportunity.

Unsecured personal loans is Upstart’s first product. They have only scratched the surface of this market. They are already expanding into auto loans with a TAM sixfold larger than the personal loan market. If you were to consider each unique category of loans as a separate vertical, they have scores of unaddressed verticals.

And I probably shouldn’t get too far out on a limb here, but it doesn’t take a wild imagination to see that the technology they have developed could be applicable to the numerous flavors of insurance. And just like their lending products allow them to partner with lending institutions rather than becoming a bank and competing with other banks, they could employ the same model with insurance. Does it end there? Well, I’m already speculating so I won’t carry it out any further.

Andrew Carnegie was known to say (I paraphrase), “It’s OK to put all your eggs in one basket, and if you do so, watch that basket very closely”. I think it’s a worthwhile exercise to ask yourself if you were constrained to one position, which company would you hold and why?

Despite the risks, I would still vote for Upstart. Not just because of the last two spectacular quarters. In addition, they have an unassailable moat. The have stellar leadership. They are considered a great place to work. Aside from the incomparable numbers, they have outstanding intangibles.

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Although UPST is not a SaaS with metrics for Annual Recurring Revenue or Dollar Based Net Expansion Rate, the issue of repeat business was raised by Dave Girouard, UPST’s CEO early during the call when he said:

“And finally, we continue to ramp up marketing to our prior borrowers to qualify for repeat loans on the Upstart platform, and this contributed meaningfully to our growth.

In fact, the number of repeat loans on our platform more than doubled from the first quarter to the second quarter of 2021.”
sjo

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Seems they’re making good progress in their Prodigy auto lending too.

1. Expanded auto refinance from 33 to 47 states (>95% of US population). They started in one state in January of this year.
2. Increased dealership footprint by 24% sequentially in Q2’21 and doubling YTD
3. Over \$1B in vehicles sold through Prodigy platform in Q2’21 (\$800M sold in Q1)
4. Five bank partners signed up for auto lending on our platform

Did they break out revenue for Prodigy? This is the first quarter of contribution.

Prodigy revenue was not broken out specifically, however:

CFO said: “ …And with respect to auto, we continue to have no meaningful contribution to the economics in fiscal year 2021. So really, everything you’re seeing in our guidance is our evolving view of our core personal loan business…

CEO said: “…I mean there is actually some bits of revenue that come from the use of that (Prodigy) product, that’s not really the long-term plan for monetization. It’s, of course, through the offers of credit through it (Prodigy).”

That is as much as was stated about Prodgidy.
sjo

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Just a quick question, hope this is not OT. This is the first time I saw the actual numbers for the low COVID Q2 2020. I had been searching for it, but could not find it anywhere. Were these numbers already known to the public?

Yes, in the S-1 prospectus issued before going public

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Early this morning - probably first of the several analysts playing catch up:

Citigroup analyst Peter Christiansen upgrades Upstart Holdings from Neutral to Buy and raises the price target from \$120 to \$205.

And highlighting my favorite part of the call yesterday:

Nat Schindler – Bank of America Merrill Lynch – Analyst

Yes. Hi. Thank you, guys. And just before the question, I want to do a quick quibble with some of my colleagues here on the sell side, pretty impressive results, and another strong quarter.

Seems a bit understated when you’re talking about quadruple digit growth, which might be a first in my career. What’s more impressive is as you mentioned early on, this was on the back of an – even if you take that out, that Q2 of last year was you turned off revenue. So – but if you compare it to Q2 of '19, you’re still looking at fivefold growth on that year. And if you look at the TransUnion data and other data on the personal loan market, obviously, the personal loan market is still down as credit card balances have fallen.

https://www.fool.com/earnings/call-transcripts/2021/08/10/up…

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