UPST earnings

Upstart just posted their results (beat expectations) and outlook (disappointing). Down to $45 in after market trading. Ouch.

Took this info from the Seeking Alpha website:

Upstart stock down 41% on guiding revenue below consensus despite Q1 earnings beat

May 09, 2022 4:10 PM ETUpstart Holdings, Inc. (UPST)By: Niloofer Shaikh, SA News Editor8 Comments

Upstart press release (NASDAQ:UPST): Q1 Non-GAAP EPS of $0.61 beats by $0.08.
Revenue of $310.14M (+155.6% Y/Y) beats by $10.01M.
Shares -41%.

“Bank partners originated 465,537 loans, totaling $4.5B, across our platform in the first quarter, up 174% from the same quarter of the prior year. Conversion on rate requests was 21% in the first quarter of 2022, down from 22% in the same quarter of the prior year.”
Q2 Outlook: Revenue of $295M to $305M vs. consensus of $334.83M; Contribution Margin of approximately 45%; Net Income of ($4)M to $0M; Adjusted Net Income of $28M to $30M; Adjusted EBITDA of $32M to $34M; Basic Weighted-Average Share Count of approximately 85M shares; Diluted Weighted-Average Share Count of approximately 96.2M shares.
FY2022 Outlook: Revenue of approximately $1.25B vs. consensus of $1.40B; Contribution Margin of approximately 48%; Adjusted EBITDA of approximately 15%.



From IR link:
“Upstart just delivered our seventh consecutive profitable quarter and our fourth straight quarter with triple-digit year-on-year revenue growth,” said Dave Girouard co-founder and CEO of Upstart. “While this year is shaping up to be a challenging one for the economy, we know the drill and are confident that we can navigate whatever 2022 and beyond might hold.”…


"… our fourth straight quarter with triple-digit year-on-year revenue growth …

For a company with lumpy revenue growth like UPST, the YoY figure is pretty much useless.

QoQ they grew 1.6%, and for Q2 the QoQ growth outlook is -1.6%. However you cut it, that’s not hypergrowth anymore.

But most troubling is the downward revision of the FY22 outlook from $1.4B to $1.25B. That’s pretty much stalled growth for the next three quarters.

I’ve already sold out based on just the numbers, but will tune into the conference call just out of curiosity to hear what happened.


I made my own decision, but I was in here buying UPST in the 300s. Looking back, that was an extremely silly thing to do. Especially looking back at their fundamentals at the time (P/E, P/S etc) but since valuations aren’t allowed here, we’ll one can imagine how much I’m down. Saul’s board, Saul’s rules. It’s just a shame.

On topic, the story has officially changed with this company. Sold 25 percent of my shares. Can’t stomach selling my shares in my ROTH IRA yet. Probably a mistake.


take responsibility for your decisions. don’t blame this board


Revenue headwinds mentioned in conf call: Rising rates make people decide not to borrow/spend, so less business.

This will be ameliorated by new business area: Expanding car loan business. They have added dealerships and credit unions, but spent money doing it. Also, their largest “investment” now is engineering.

Balance sheet issue: They use “Mark to market” method quarterly to show the value of loans they hold on their books. When rates rise for “new” loans, the market value of the “old” loans decreases. They mentioned that twice so far in the conf call.

Something else that was interesting to me: They said the longer ago loans outperformed expectations. With the inflation, higher rates and economic conditions, they expect the more recent ones to underperform.


QoQ they grew 1.6%, and for Q2 the QoQ growth outlook is -1.6%. However you cut it, that’s not hypergrowth anymore.

Sequential growth is 9% Quarter over Quarter considering the stable fee revenue and Q1 is a seasonally weak quarter. NIM hit on their top line revenue is based on mark to market accounting for the R&D loans they keep on their books. So that can be an artificial tailwind (in decreasing interest rate environment) or headwind (is increasing interest rate environment). R&D loans are loans for their newer products they keep on their books like auto loans or small business loans, rest are not on their books.

Guidance is flat, and they explained it in the ER.

  1. There is a price elasticity to demand of loans when interest rates are higher.
  2. In higher interest rate environment, automatic conversion from their AI algorithms are lower to account from higher macro risk.

I think very encouraging is:
1)They continue to increase lending partners (bank and credit partners) very fast. They went from 42 to 57 this quarter and said pipeline continues to be very strong.
2)Their auto loan AI engine is yet not integrated with their auto retail software. So expect exponential growth in this adjacent market.

So overall growth will be lumpy here based on macro factors and roll out of new products. But the fundamental story has not yet changed at all. Can they multiply their revenue 10x in a few years ? My answer would be an emphatic yes. It would not be a straighter line as with Snowflake or NET, but the direction is correct.


UPST My Notes From Analyst Q/A Q1 2022 Earnings Results
May 9, 2022 3:30 Central Time

David Girouard, CEO
Sanjay Datta, CFO

Just listened to the earnings call. Here is the analyst Q/A portion of the call:

Q Conversion rate was lower than their model. What to expect going forward?

A Interest rates and interest rates has resulted in lower conversions. They view the delinquency rates to be stable since the last 60 days. These two things can present further threats to the conversion rates.

Q ABS side of the business, talk about the demand environment for their loans today and do they forsee future issues/costs?

A Loan demand and bank/credit union balance sheets is more insulated and the buyers who are buying with investment market is more susceptible to ups and downs. The amount going to ABS markets in 2022 is less than it was in 2021.

Q Credit trends seem to be stable in the last 60 days. Is there a concern at some point and could this impact the ability of UPST to attract funding? Also, you’ve upped the balance sheet of UPST as a part of R&D and testing loans for new markets. Please comment on this.

A Triggers on ABS loans, and what will breach delinquencies, not something that rises to the level of concern, rather UPST sees it as a temporary/short term issue. RE: R&D, and using UPST’s balance sheet to help test new markets, the higher interest rates has impacted this. This was planned and is necessary in developing the mechanisms to offer new verticals.

Q UPST’s guidance is building in a recession at the end of this year.

A Dave expects less volume, based on pricing in the market being higher aka interest rates, so the risk premium is higher, which lessens their volume with 300 basis points or higher in interest rates. In no way is UPST predicting a recession.

Q Surprised to hear UPST is using their balance sheet to finance loans.

A Price discovery happens when our bank partners can make it happen. When the risk premium changed so rapidly, it was necessary, and it is not something they foresee doing on a regular basis in the future. Doing so gave UPST the fluidity and flexibility they needed to react to interest rates raising so quickly.

Q With interest rates going up, how do you see this? Spread? How are you looking at the auto refi interest in the future.

A It’s as simple as when the consumer rates go up, there are a bunch of people who are no longer approved for a loan, and for those who are approved for a loan, the interest rates go up. It’s as simple as when rates go up, their volume at UPST will go down.
It’s a little hard to judge auto re-fi, it’s an interest rate-sensitive product, hard to predict how that will shake out in the future.

Q Not having the origination volume you did previously. The balance sheet piece of $600M is so much larger than just the R&D piece you had originally discussed.

A Don’t have a specific $ in mind for R&D vs. managing interest rate shocks. This is a bit fluid. Certainly in Q1, with all the volatility they saw, most of their work was of the R&D flavor.
Had a phenomenal quarter signing-up new customers and the pipeline has never been stronger. They’re adding about one lender per week.

Q Revenue outlook change lower due to increased rates?

A No, there’s not any significant change, on the banks and credit union side there’s been very little change, they’ve mainly changed in terms of return targets on the investor side of the equation.

Q Loans on the balance sheet, do you plan to sell them into the market or when they mature, or when?

A Being held as for sale loans. This will be a function based on what the market looks like, but the goal would be to sell the loans.

Q Making it easier to change to delinquent borrowers in the forbearance program.

A On loan modifications, UPST has a lot of data, you’re better off creating flexibility when borrowers are having problems. The current macro environment accelerated the need to expedite the forbearance program.

Q How should we think about EBITDA and the rising interest rate environment?

A It’s a function of scale of their balance sheet, which is bigger than it was last year. Depends on what happens to interest rates and what happens to treasury notes. If it continues to go up, there will be further de-valuations.

Q Putting loans on your balance sheet. Some for R&D and some for flexibility. How much %? Will this go from the single digits to the double digits?

A In Q1 approx ¾ was for R&D phase of auto loans. Potential future scenarios depends on their ability to react to create stability. Goal is to create more of an automated platform that can react quickly.

Q Follow-up on Auto, is there a timeline change or can you stick with the original timeline?

A No change for the auto re-fi, and auto lending will be to bring them on more next year.

Q Do you think you can approach the ___ number any time soon?

A We don’t expect the ___ number to go back to 13,000. Don’t see loan size being driven up significantly any time soon. Looking across the whole platform, it’s hard to imagine loan sizes going back to what they were in the past.

Q $600M loans on your balance sheet. Is that the high water mark?

A No, don’t think we can say that’s the high water mark. They need to keep putting $ into the R&D market and the banks are going to want to see some curves before they put their own $ into these loans.

Q How have the usery limits impacted them in terms of rate capping what would be known as APR and how does that impact trajectory?

A State and/or national rate caps will come into play, for which UPST does not have any control. A lot of people who would have been approved previously, are no longer able to be approved as APR rate goes above 36%.

Q In a tighter market re: take rates, will it get tougher?

A Yes. They will likely get more conservative as the market gets tougher.

Q You out-performed during pandemic and now loans are showing signs of under-performing during these difficult macro-economic times. What does this mean for loans that are Q4 2022 since they’re

A Your statements aren’t entirely accurate. There were marginal differences between lowest and highest risk loans. It has nothing to do with FICO, rather it’s only by their own risk separation and UPST is very happy with how their system is performing, which is very stable. None of their banks or Credit Unions are seeing under-performance.
The real relationship with Coert performance is
Late 1919 to early 2021 were 2X the return target. Per investor deck most recent Q3-Q1 loans have under-performed.

Q If student loan forbearance ends, will it negatively impact UPST?

A Yes, it may be a continuation of the trend that’s been taking place, but UPST sees that most of the stimulus impact has drained out of the economy.

Q How big of an impact on UPST will ____ be?

A As the biggest platform in this space, trends will be roughly proportional to the performance of UPST.

Upstart Q122 Earnings Release…

Upstart Q122 Earnings Deck…

It is my hope that fellow board members find this information helpful until the Q/A session is posted at a later time.



I think this ER is horrible. The cut in revenue means they don’t expect any QoQ revenue growth for this year.

I have a 25% allocation in Upstart pre ER, with the 40% drop it is 16% post ER and I trimmed it to about 5%. Taking a big loss but the money will stay in the market.

I think Upstart’s long term vision and trajectory have not changed but the growth is stalling this year because of current macro conditions and the executives don’t have a way to navigate it other than being conservative. They could surprise us again or they may not. I believe that instead of allocating my capital to “would-bes” I should put it in companies that are still executing with high growth (read: Datadog.) I am happy to get back in Upstart later when they start growing again and when they roll out substantial new products. For a “story company” like Upstart now (they are totally in value stock territory btw) 2-5% is an amount that I can hold indefinitely. And I do think their other flywheels will be significant. But I want to admit my mistake and put my capital to companies that are in better spots on their growth curve - this is one of the lessons I learned here: don’t fall in love with the company when its growth story changed.

One question that has been on my mind was: do we really have a hand of high quality companies in our portfolios? Why did they all IPO’d in the last few years e.g Snowflake? So far I haven’t seen any reason to not believe that they are not high quality companies- and companies do choose favorable market when they IPO (I’m at a pre-IPO company and we are delaying IPO due to market conditions.) So yes many high quality companies can show up at the same time.

Maybe I’m wrong with my entry point today, but I’m not gonna get scared out of the market.


“I have a 25% allocation in Upstart pre ER, with the 40% drop it is 16% post ER and I trimmed it to about 5%”

Well hindsight being 20/20, but many folks I talk with were concerned to start the year about interest rates rising and how that would affect the names that could be affected by rising interest rates. AFRM and UPST were two obvious ones. Others like MELI were also on that list. Like it or not, anything tied to the consumer isn’t going to perform that well in this environment.

So many I know cut back or sold out. I dumped AFRM last last year and sold my 5% position down to 1,5% in UPST. Not because I don’t think they have a good disruptive product, but because of inflation and interest rate hikes. Slower lending to customers, especially lower income customers.

So what you might learn from this, what you might ask yourself is, why did you allow yourself in this environment to have a 25% allocation in an interest rate sensitive company.

I’m kicking myself for even holding a 1.5% position, that by the looks of it will be less then a 1% position tomorrow.



Listening to the call management seemed hamstrung by higher interests rates which caused both decreased loan demand and a smaller pool of acceptable applicants (as requirements tighten in this environment).

Auto is still on pace for 2023, which was expected and remains promising. What has changed is that, contrary to prior guidance, personal loans are no longer projected to sustain growth of 70+% for 2022.

The price action hurts but imagine how Paul Gu feels.

Long UPST for now.


There is one positive thing I saw in this call. On page 12 of the deck there is a matrix comparing the effectiveness of Upstart risk grade and FICO.

For FICO the default rate ranges between 3.4 to 7.7
For Upstart it ranges between 0.7 and 9.0

If the chart is correct with a large sample size, then this is a great technical achievement - in machine learning, we call this type of classification model “discriminative” - the goal is to find sharp boundaries and push the good ones toward one end and bad ones toward the other as far as possible. A typical example is that a weather forecast model that puts out “50% chance of rain” every day is much less useful and actionable than a discriminative one that puts out either “5% chance of rain” and “95% change of rain” for daily forecasts. I think this is the right metric to chase and shows the power of product.

A more discriminative model means there are more levers for controlling risk and pricing the loans. This is very good.

The only problem with this chart is that I can’t see the sample size for each of the vintage (they could be cherry-picking the FICO segments) and it also doesn’t show year to year trend on whether the model performance has degraded or not recently.

On the other hand, besides the clear revenue problem, another bad I saw in the call was that they said the rising interest rates will push some applications above the 36% interest rate threshold that are set by state laws as the maximum. This was a blind spot for me as I didn’t think of this issue in my investment thesis. I interpret it as that they will lose the “riskiest” segment of revenue for now until their model improves. Given that rates will probably stay high for some time, this can really take a while. The lost revenue, in my opinion, has to come from other products that are currently in their infancies and will not be material before 2023.

The stalling revenue is so bad that it puts Upstart square in the “story stock” zone for me. Given the high growth of other companies, even “holding for one year” with little to no growth in Upstart’s revenue means I’ll be losing out on an almost guaranteed 60-70% revenue increase from other high quality SaaS companies. Upstart is certainly a complex story compared to SaaS and I have learned a pricy lesson.


Well this was a sad ending to an already sad day. I, like many of you, had been expecting the typical beat and raise from UPST and we clearly didn’t get that. There’s a lot not to like about this quarter: mainly decelerating revenue growth and the reduced FY guidance. These are indeed very disappointing, but for me they’re not thesis breakers.

Listening the the CC, it was made very clear that the recent macroeconomic changes (ie. fed tightening) have caused a substantial slow down in UPST’s business. For me, that’s the saving grace for this report.

When I bought UPST (July 2021, around 120/share), I bought it because I thought it had the potential to disrupt the personal loan industry. Well, now nearly a year later we’ve seen it disrupt the personal loan industry and I think they now have a good chance at breaking into additional markets (auto refi, business loans). So why would I sell? Yes, the fed will not be playing nice for the foreseeable future, but that doesn’t change the fact that UPST’s AI model works, as evidenced by the continued momentum of new banks signing up.

Look, this is not a DDOG. The path forward will be bumpy, and UPST might not make it. That’s just how it is. That’s investing. But for me, I’m willing to take the risk (especially at these prices AH, I mean come on :frowning: )

A quick disclosure, this is what I’m doing, please do what’s best for you in your situations. Also, I’m not any kind of financial guru, in fact my background is in mechanical engineering, which is pretty much as unrelated as unrelated can be. Grateful for having found this board a year ago even though I’m about as far underwater as one can be (think Mariana’s Trench ;))


I will continue to hold my UPST shares, as I still believe the company has a bright future and I don’t follow as high-turnover a strategy as many here. It’s always been clear that UPST is exposed to macro conditions – witness the huge dropoff in the first COVID quarter – so this is IMO to be expected along the way.

But, with the guidance of a full year of flat revenue QoQ, it’s a clear-cut case that UPST no longer warrants discussion on this board.


My biggest ? is with the loans on the balance sheet. If they had to do that this quarter to maintain liquidity in the market, and if they said the total amount of loans on the balance sheet could (probably will) go higher, how much can they afford to take on? Does that $ from loans on the balance sheet count against their cash balance? Or is the cash balance separate from the loans on the balance sheet? How much more loans on the balance sheet can they add before they are overwhelmed by it and have to stop approving more loans - assuming they can’t get anyone else to buy those loans from them?

Seems like a slippery slope. Can anyone help answer this?


I believe Sanjay answered this on the call, stating that they have a strategy to borrow for those loans that they retain. They have plenty of cash coverage and did not at all seem to be concerned about significantly increasing this retention of loans (either for R&D or for mark to market adjustments needed to close their ABS tranches)

Speaking of mark to market, my single biggest concern is that of transient interest rate changes due to investor, consumer and market conditions NOT being a feature in their platform.

If Dave and Sanjay and Paul need to fix anything, it’s to enable the platform to mark to market with lightning speed. This is a tough game to play because cycle time between offer to close to season to securitization is the critical exposure.

If that process takes 10 days and the rates move .2% in that timeframe, UPST has a significant enticement needed to enable deal flow. If it’s even longer, what kind of exposure to rate changes is acceptable?

Example: a fringe borrower is approved for 35.99% APR on a personal loan (the maximum allowable by federal charter is 36%. UPST has stated they will not exceed this limit for APR).

In the cycle, conditions move. As a result, the intended ABS cannot accept this loan because of Loan value to credit capacity, or income, or, or, or… That loan must now follow an alternate deal flow, remaining on UPSTs books until it is dispositioned. Now what?

Back to asset carry: Even if they didn’t borrow, they have significant cash in the short term. What also concerned about is that as more “R&D loans” are carried, their ability to add new products to the pilot/test development pool diminishes. As a result, they could bog down on loan volume when more than one product is concurrently in development.

This adds a sequential timing concern for program overlaps. Again, small concern for the moment, but a concern none the less.


Another item that probably spooked the markets is that net-income is projected to go down 44% Q/Q.

One silver lining from the ER was that credit union partners + dealer rooftops are ramping pretty well.

Bank and Credit Union partners Q/Q Change %

Q12021 18 N/A
Q22021 25 ~39%
Q32021 31 ~24%
Q42021 42 ~35%
Q12022 57 ~36%

Dealer Rooftops: Q/Q Change
Q32020  91  N/A
Q42020 111 ~22%   
Q12021 162 ~46%
Q22021 199 ~23%
Q32021 291 ~46%
Q42021 410 ~41%
Q12022 525 ~28%

Given that UPST is projecting revenue to go down Q/Q , would these additions also slow down a lot, or just each bank/credit union would just originate less loan volume( less revenue for UPST).


The CFO said about 75% of added loans to the balance sheet are related to R&D. This means only $86M or 25% of the $344M of the loans added to the balance sheet this Q are non-auto loans. This is about 2% of the total loan originations this Q - so, still seems like a small amount.

My concern is the auto refi loans which added about $258M (75% of the loans added this Q to the balance sheet) need to be sold off to bank partners. Else we will end this year with $1.5B of auto refi loans on the balance sheet.


Well, someone can correct me if I am wrong, but we didn’t see the R&D phase for personal loans; it happened when Upstart was not a publicly traded company. They seemed pretty confident when they said they’ll have to hold the first auto-loan product loans for a while to show bank partners and investor funds how they perform.

This whole thing feels disappointing in the moment, but I am still very optimistic about the future for Upstart. The number of banks and auto dealers signing up for their product is growing fast, and I have every reason to think that Upstart has the AI and the ability to outperform over the long run. My only concern would be that a “black swan”-type event in business credit that freezes up the system and forces any kind of “margin-call” on Upstart. No reason to predict such a thing, but that is why it’s called a “Black Swan”, after all.


it all doesnt matter!! The business model has completely changed now… from no loans on the books with no risk to subprime loan with all the risk… aka subprime bank! Reset of valuation and risk management necessary!

I sold my small position. Again, Saul was right, way to complex story here!