Friends,
Monkey cobbled together the following thoughts about Upstart post earnings:
-The big point we may have neglected or begun to take for granted is that SaaS companies are less lumpy than non-Saas; however, that does not mean that there are no non-SaaS companies that are worth owning; it’s just that their revenue growth won’t be as smooth–in the short term. Going forward, let’s assume Upstart won’t be as predictable, but they have years and years of market growth opportunities. Does that negate the lumpiness effect to a large extent?
-Sometimes when we do incredible research–tip of the cap to you, Jon Wayne–we can sometimes lose the banana forest for the bananas. It’s not that all the details don’t have value, OBVIOUSLY. But sometimes we think we can truly figure out the “truth” about something that is too complex to figure out. But not “complex” in the TeleDoc sense or Twilio sense, but complex in the world-is-complex and we can never know all the things way. Monkey’s experience with Infinera comes to mind, back in the day. We had a generous poster who knew that company inside and out and why their tech was superior, etc. And his posts were so obviously well-researched and detailed and correct. But holistically, the market disagreed and still disagrees. So let’s keep in mind the big picture and not assume that knowing everything will lead to the correct outcome.
-From Monkey’s perch, Upstart has assembled a brilliant leadership and tech team, who have created an incredible product with obvious success in a financial market that is ripe for disruption. Its current results already prove that. This product is not easily replicable because of the time and brain-power and data necessary to replicate it. Finance touches everything.
-And they are already telling us literally that they aim to go from the smallest markets to big ones, and then to the hugest gorillas of them all: auto and mortgage. If they could figure out the complexities of personal loans, it appears they can figure out the other ones. Just like Cloudflare, there’s a lot of story narrative here, too, but is this really a case of “hope” when the numbers are staggeringly in their favor?
-Stock-price-wise, they seem likely to make about 1.5Billion in revenue in 2022 based on revenue projections. That would give them an approximate 12x EV/NTM ratio. Compare that with NET’s 80, SNOW’s 72, DDOG’s49. Obviously, the SaaS model is superior. But 12x is several magnitudes cheaper than some of our other stalwarts, and UPST is just getting started.
-The realm Upstart deals with is AI. In other words, they know and understand AI better than most companies, and are already doing real-world things with it. Isn’t it extremely likely that they will leverage that into all kinds of nearby opportunities, and not just in the finance world? Or at the very least, figure out all the nooks and crannies where their experience and expertise will be applicable? Isn’t AI a huge frontier of opportunity and being a leader in it already a huge head-start into whatever else might appear over the horizon?
-They already have 1B+ in cash! Because they are already profitable. And are just getting started. Their optionality seems to be tremendous.
-Insiders are not selling more than their automated setup; they were not dumping their shares when they were nearly 400 a share. That inspires confidence that they are confident in what they have created.
-I noted many people being nervous about Upstart earnings before they were announced; that’s a good indicator that your position was too large; we should never feel anxious about earnings because stocks go up and down and we can’t ever know everything. So consider what is a reasonable max for your position no matter how good the story/stock is.
-Their guidance for the next quarter seemed to have accelerated, easing the worries of a true decceleration and giving credence to the “lumpy” effect. Isn’t the market supposed to be forward not backward-looking?
-We are truly amazing at seeing through our own biases and when the numbers speak, we listen. But sometimes patience is required. It just is. All great companies drop 30-40% at some point. Can we have the wisdom to know the difference between “numbers are bad and the company is done” versus “this is a normal and healthy and common path of growth”? Let us examine our quick and itchy trigger fingers to make sure our decisions are being made for the right reasons, and our investing style is still holistically a long-term game, not a short-term trader game theory hodgepodge.
-Monkey’s position of Upstart is now 14.5% which seems appropriate given the current numbers.
Thoughts?
Humbly Yours,
Monkey (long Upstart)