UPST thesis trending in the wrong direction

As much as I have an oversized position on UPST, I believe the thesis now changed. We invested in UPST because it acts as a middleman and takes in risk-free fees. However, their fee revenue is only growing at 12% q/q this past quarter and representing only 92% of their total revenue now, from 97% the past few quarters. And the net interest income, now representing 8% of total revenue, grows due to larger loans on their own balance sheet.

We invested in UPST because we expect its fee revenue keeps hypergrowth, which turns out to be false, and based on the conference call they expect it to be lumpy in the future at best. And we invested in UPST because it doesn’t have a lot of loans on their own balance sheet subject to credit risk (which they forecasted to be higher in the coming days as personal savings rates go down), which is trending in the wrong direction.

Finally it’s evident that fraud is a material risk that we didn’t include in our original investment thesis. At best this will incur more cost and drive down margin. At worst it’ll be really bad.

All in all I think the future of UPST is lumpy per their own terms at best, and I believe continuing investing in UPST is now based on hope that their fee revenue re-accelerates, rather than facts as seen in software companies with recurring revenue. I’m negative on this. I welcome counter arguments. Thanks.


Re Fraud and Upstart,

Fraud is not a negative for Upstart, it hits everyone in this space. For Upstart it is more of an opportunity that they again will be better placed to address than all of the credit unions on their own.

I think the fraudsters tried Upstart out this quarter as Upstart is getting bigger. Probably, based Upstarts reported success rate, the fraudsters will move on to easier prey= higher ROI… Time will tell of course.

Consider the fraud farms across the world and the way they engage when taking out a loan there are clearly data points to train algorithms on. New value to give to the credit unions… Not too dissimilar from Crowdstrike’s moat.

Anyway, disappointed in the market reaction, disappointed on the quarter and feeling bad. Nevertheless, long on Upstart :slight_smile:


I believe the thesis now changed.

This premise hits on a very important difference between this board and TMF philosophy–a difference that I’ve been struggling with. There was a great post on UPST’s premium board about how if you look at the LONG TERM charts of just about every growth stock in tech (subject to survivor bias, sure), you’ll see big drops. ‘Wow, it was trending up, and now it’s trending down.’ It grew faster when it was smaller. It’ll come back as it continues to execute. Is this a surprise to anyone? Or is it just not how the folks on this board prioritize their metrics when selecting stocks? Importantly, the thesis here isn’t uniform, it’s Motley. I’ll come back to this main point in a second.

We invested in UPST because we expect its fee revenue keeps hypergrowth, which turns out to be false

False is a very strong word. I think we need to be checking the seasonality of lending and auto loans, employee shortages, persistent supply chain issues, and the of the overall Covid pandemic situation first.

and based on the conference call they expect it to be lumpy in the future at best.

Wait, what? Why is “lumpy” bad? As above, what tech growth company ISN’T lumpy and volatile? I did not at all invest in UPST because I expected the consistent hypergrowth the company has “failed” to deliver. I invested because I trust leadership to steer the company on a generally market-beating, category-crushing upward arc of success over the next 3-5 years by expanding its parner base and product offerings beyond just 30 or so lenders and personal+auto loans–a potential TAM explosion already well-documented here. Which gets me back to my main point:

Saul Board investors succeed because they make short term decisions well. Lazier TMF members, like me, historically, succeed because they make long term decisions well. Not to go false-binary, but blending the two approaches recently has been a challenge for me. My transition into smaller-company SaaS investing, which clearly takes a bit more attention and diligence and for which this is clearly the best reading space, is barely even a year old. Maybe it’s just a little bit of growing pains, but I’m using my experience to call on others new here to take note of the difference between official TMF guidance/philosophy and what makes this board’s investors happier and wealthier.

Finally, I really appreciate it when posters who sell on quarterly news (I don’t think of it as “panic-selling”, just short-term investing) tell us where the money is going, like Pavlos did. Individuals’ answers to the question of “if not this, what?” (and vice versa, for adds) is good color, even if every investor is making and owning our decisions (or at least, should be). For my part in this regard, I added similar dollar amounts to UPST both before and after the big drop (prices: ~$332 and $253), using cash sourced from another SHOP trim last week. Because I’m taking the long-term view on this one, as I do almost all of my investments. Thank you for reading this far and for making and keeping this the best board at the Fool.

-n8 (all stock holdings at profile, including older and more conservative non-Saulish ones)


I really appreciate the intent in clarifying the approach of this board and the Foolish philosophy :slight_smile:

I have learned an immeasurable amount about investing from these two distinct frameworks/philosophies. feel that understanding the growth metrics allows one to chart their own path!

New to Upstart with a cost basis of $288.

For some: With shorter time horizons, that decision may not make sense.

For me: Over the next 5-10 years I am excited to see scaling dominos - Personal Loans - Auto Loans - Low ($)/Short-term payback - Mortgage.

For others: I am usually a bit eager to fill out a new position. Starting a new position in 1/3 increments could be helpful to “get to know them”.


I wish I had more time to devote to this today but I wanted to weight in a little bit. I added to my position today after reading as much as I could. Sure it is down a lot today. My first three purchases are still up over 100% each. Heck I’m up today. None of that matters. I don’t know why it is down so much. I can only speculate about expectations and fear and such, or maybe people think spinning up to attack new markets will take longer than current market saturation…who knows. I just haven’t come across anything that really changes the business. The capabilities of their platform was not called in to question. They are still moving in to auto and then mortgage, both of which are huge opportunities. In the mean time they are still putting up some great numbers.

The fraud thing is interesting, but so far it sounds more of a complexity of the business, which is being handled, than something truly dangerous.

The thing is, if we can’t spot any reason to stop investing then all that has happened today is the price reset to where it was about 5 weeks ago.

I love that people are spotting changes in some of the metrics, but I don’t see a red flag yet. Perhaps others will chime in with more extreme views, in which case I will happily read their perspective and reevaluate my own. This is what makes the board here amazing.

As always, I am ready and willing to be wrong.


Ouch, Upstart decline in loan volume despite loan numbers growth was not expected by me. When in the call Upstart Management said their immediately getting into smaller size lending and soon getting into SMB larger sized loans, it sounded to me like each of these areas would begin before Auto begins to move the needle. Did I get that right?
I maintain a 12% position in Upstart because the only amendment to my investment thesis is increased lumpiness in revenue generation. I believe that I ignored the natural lumpiness of the Upstart business model, as observed in my holding 28% position going in to earnings. I focused on what I wanted to believe about the Upstart growth trajectory instead of what I knew about the business:

  1. I chose to believe the genius of their team outweighed the vulnerability to the lack of Annually Recurring Revenue.

I used most of the money to buy Monday on their 21% dip due to fear of share price drop after lock up expiration this Friday.




I wanted to add a few points about $UPST’s earnings:

  1. Lumpiness affects both SaaS stocks and Non-SaaS stocks, which makes earnings particularly risky. We saw this with SNOW’s report from last quarter (which was also “lumpy” and should show an acceleration this next earnings report).

  2. We failed to consider some extrinsic factors that materially affected $UPST’s earnings this quarter.

  • First is the fraud issue, which impacted their conversion rate. I won’t add more here since this may just be a cost of doing business that may or may cause a lumpy loss of revenue.
  • Second, there is a limited supply of hidden prime borrowers. My colleague applied for a Upstart loan, initially got approved for a $50,000 personal loan at 8.5% interest over 5 years. This was in August. He applied again after taking out a credit card, he was then only offered a maximum of $17,000 loan at 18% over 3 years. He applied a week ago, after taking out another credit card (take advantage of another 0% interest rate) and was offered $2,600 at 26% interest! As the economy declines and the consumer’s debt load increase, is Upstart in a position to appeal to these hidden prime borrowers as they become increasingly risky? My colleague didn’t take the offers from Upstart and I doubt most would. Could be why jonwayne325’s tracking of Upstart’s search results didn’t translate into higher revenue per loan. Also explains why the average loan amount decreased.
  • Third, (related to the second point) consumers may be too squeezed right now to take on additional debt. This may hurt $UPST’s transition into auto loans and mortgages over the next quarter or year. We typically don’t discuss macro risks as they are unpredictable, but $UPST’s business directly depends on consumers economic health. $BLND (cloud-based digital banking platform) just reported today and saw decreased revenue growth due to a 25% drop in mortgage origins YoY. This is despite increasing its market share significantly.