Hi StocksandStouts,
I’m struggling to understand what impact [inflation] this would have on Upstart’s long-term prospects.
Do you mean Upstart’s prospects long term, like 5 years from now? I guess that might not matter so much necessarily. But my goal for my portfolio is achieving the highest return CAGR. Things that influence a business performance over the incoming quarters for an unknown duration, should always matter.
Do I really want the potential opportunity cost of holding a stock that goes nowhere because its business is proven to be negatively hit by macroeconomic effects in the near term?
If I ask it another way: Is anyone here seriously still holding Lightspeed just because macro stuff happening over the next couple quarters won’t likely “impact its long term prospects?”
Remember, they got hit hard by supply chain issues, COVID shutdown/macro slowdown, staffing problems. All really supposed to be transitory, in the context of long term projections, right? Yet I don’t see anyone still invested in LSPD.
Going back to UPST, you have to be concerned about guidance they give when they report Q4. If they cite inflation/covid/macro as uncertainties, I would suspect the market would not like that news.
What is the takeaway here? Does it matter if average loan size decreases (temporarily or permanently, I don’t know) if volume increases? That to me is the beauty of a high margin business. Upstart’s originations increased 244% last quarter.
I’m a little perplexed by your statement here. If you reviewed Q3 results for UPST, you would know that the volume did NOT increase enough to make up for the average loan size drop in Q3, not even close. Dollar loan volume originations increased 12% QoQ…remember, I am looking to invest (with the intention of holding long term) the best HYPERgrowth stocks for the highest portfolio CAGR.
If 12% QoQ is what they did in Q3, and then that decelerates from there through 2022, that growth won’t cut it!
(keep in mind to separate out fee revenue/dollar loan volume from interest income/securitization sales - which is not the revenue that matters).
A non-SaaS, heavily macro-influenced stock must sustainably grow faster than that for me to hold it. Especially for UPST which is expected to be lumpy growth.
Otherwise, I feel like I am just buying into a “Growth at a reasonable price” company business, not hypergrowth.
Also - I am not sure what you’re referring to regarding the ‘beauty of a high margin business’? (I note that their contribution margin is about half of our highly prized SaaS stocks’ gross margins discussed on the board - it’s not really that ‘high’ in that context)
Jon