Upstart, A big thanks to Gaucho Rico and Bert

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A call-out and a big thanks to Gaucho Rico and Bert Hochfeld

Gaucho Rico brought Upstart to the Board in February. Now Gaucho is a very smart guy, but at the time it seemed so different than the usual company that I invest in that I only took a tiny position in it, just to put it on my radar. Then in April, Bert recommended it in his newsletter, Ticker Target (that was four months ago so it seems fair to call it out). Now Bert is also very smart, but usually a very conservative guy who worries over valuation and stuff, but he was gung-ho for Upstart, so between the two of them I got serious about investing in Upstart. Now Upstart has made me and others on the board lots of money, and I want to sincerely thank the two of them.

And come to think of it, I’d like to also thank jonwayne who, in recent months, has written a string of great evaluating posts on Upstart, which has been very useful to the board. (In fact, if you look at one of his posts, up at the top by his name, you will see a big “NEW” saying that he’s a New Fool Contributor, and right next to that NEW you’ll see a Crown designating him as A Top Recommended Fool. I don’t think in all my years at the Fool, I’ve ever seen those two symbols together. Congratulations to him!)

Saul

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Thanks Saul, but I can’t take all the credit from bringing it to the board. UPST IPOed in December so it’s been around before I knew it existed. I heard about it from somewhere. I think I heard about it from Bear (or maybe Ethan). Anyway, the three of us had a Zoom call and looked into together in early February, and I bought my first shares on 9Feb for just under $78. My first post about it on the board was in my 12Feb portfolio update:
https://gauchorico.com/2021-02-12-portfolio-update/

Saul, interestingly, I found an email that I sent you on 22Feb about Upstart. Here’s part of what I wrote in that email:

In a recession, the idea is that Upstart can better predict which borrowers might default so banks can lower non-performing loans and issue more loans (i.e. to customers who Upstart calculates will not default but other underwriting methods will not approve). Yes, it’s a small position. I have a 2.4% position and might be willing to take it up to 3%. If I see UPST gaining more bank customers then I might increase above 3%.

I do like the risk-reward. I might lose 50% or make 2000%.

Well, confidence in UPST has grown A LOT since I wrote that in late February. Now UPST is my largest position at 19.3% of my portfolio.

About my prediction that it could drop by 50% or increase by 2000% is about half right so far! I bought my first shares at $77.80 on 9Feb. UPST fell as low as $42.51 on 5Mar which is a 45% drop from my initial/lowest purchase. The second half of my prediction would mean a share price of $1633.80 (2000% increase is 21x on $77.80). Not there yet but who knows. I think it’s possible for UPST to 9x from here if they manage to successfully enter more loan markets.

Again, thanks to Bear and Ethan for bringing it to my attention! We’ve collectively benefitted so far…

GR

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Those are kind words, Saul, and I also appreciate everyone else who gave shoutouts in other threads!

I did not know this board existed until about two months ago and at the time I was looking for a place where I can share my insights into UPST and benefit from a shared discussion. I’m happy my writings have been helpful.

Fun fact, I had read Upstart’s S1 back in December 2020 when they had their IPO. But I brushed them off as “just another AI buzzword company”. It was Q4 earnigns in March that put it back on my watchlist. And then Q1 earnings led me to spend the entire after-market hours night digging deep into the company. A classic case of ‘follow the numbers’ - but I certainly lacked the foresight that GauchoRico and others had for buying shares prior to March Q4 earnings release.

I still remember in shock when the stock price tumbled on May 12 after the Q1 report, it opened at $115 and down to $88; wow what a gift that was!
It is still very befuddling to me why it crashed on such strong fundamental results/guidance, and even more puzzling to me when UPST’s share price languished after IPO lock up expiry in June, all the way up to Q2 release this week. But that was also another gift, as I averaged up on ever more shares in its tight several week range around $120.

Anyway, I’d like to still materially contribute to this board on UPST, within this post reply.

I just finished watching another Upstart Jeff Keltner video, uploaded two days ago, although it appears this was a webinar between Upstart and prospective bank partners recorded in March 2021
https://www.youtube.com/watch?v=CudLx0uOxnE

Some highlights:

35:22 timestamp - “four to five months is on the better side of average” for the timeline it takes a bank partner to be signed up and fully implemented. Not ‘fast’ by any means but that’s the nature of the conservative banking industry, I suppose.

45:51 timestamp - graphs showing COVID peak payment impairment, UPST reached an excess peak of 6 percent in a modified repayment program but 95% of those recovered back to current regular payments by Q3 2020.
This strongly outperformed the industry overall which only 81% were back to current in that timeframe.

In comparison, LendingClub, per the latest March 2021 KBRA surveillance report, 12.4% of loans at its COVID peak (more than double that of Upstart) had to enroll in assistance programs and only 63% of them returned to regular payments by Feb 2021. That’s 63% of 12.4 = 4.588% still in loan modification

And, I confirmed UPST’s numbers from the video: according to KBRA, “UPST’s active modification levels peaked in May 2020 at approximately 5.6%.” But here’s the kicker, if we expand the timeframe to March 2021, then “for Upstart Platform originations from January 2020 through March 31, 2021 and as of March 31, 2021, loans in active modifications decreased to approximately 0.15%.”
Just compare that: 0.15% UPST in modification versus 4.588% LendingClub in modification. Wow!

50:12 timestamp - “Most bank partners looking for $1 to $10 to $15 million volume a month in personal loan originations” [This means if Upstart has 100 bank partners, they might average $1B a month in personal loan originations which may generate $70 million in fee revenue per month = $210 million fee revenue per quarter. Not “massive”, but this would be for personal loans alone. I continue to believe auto refinance/lending growth is absolutely essential for UPST to continue to outperform earnings next year]

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To give full credit, Jonah Lupton had a deep dive and recommendation in December. That’s where I first heard it… of course I didn’t invest then, nor when Gaucho brought it up nor when Bert talked about it nor when johnwayne did nor when Saul was shocked it didn’t go up after a blowout Q1 earnings. Only after it had doubled in a a month did I realize my concerns about it were unfair because other companies I held had similar concerns but I wasn’t worried about them then. I was afraid I missed on it and feel I got lucky that lockup time brought the price down more (nowhere near where y’all recommended and got in at).

Anyway, thanks to all those who brought it up and talked about it. Even now its not too late.

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I should mention one more shout out to Tom Gardner from Motley Fool Stock Advisor, but I had to wait until I got permission from the Fool, which I just received. Tom recommended Upstart on Stock Advisor in June, and re-recommended it a day or two before results were just announced, which has to be pointed out as brilliant timing.

I still know people who say “Oh, I can’t afford to subscribe to MF Stock Advisor, MF Rule Breakers, or Bert Hochfeld’s Ticker Target”.

You can’t afford it??? One recommendation like this can make you enough to pay for 100 years of subscriptions!!! That’s not an exaggeration. Multiply the yearly subscription costs of one of these newsletters by 100 and see for yourself. You can’t afford not to subscribe to them. Besides, you want the MF to stay financially healthy as they provide this board for us for free, so add that to your consideration. :grinning:

Best,

Saul

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I don’t post on here very often. I’m not sure that my current knowledge would bring too much value at this point, although I think I should be able to at least converse in the near future.

But I do want to agree with Saul here. I have in the past avoided paying a subscription because; ‘I cannot afford it.’

I eventually pulled the trigger (stock advisor) and let me just say it is worth every penny, if only just from an educational standpoint.

Looking forward to contributing more in the future.

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I’m sure Tom Gardner won’t mind me mentioning that he actually recommended UPST March 9 in one of his pricier premium services when it was trading at $50. It went on to double shortly thereafter, brilliant timing as well. Wish I could say I brilliantly invested in it at $50 but in the long run it won’t matter.

The Motley Fool is an amazing resource. But the investment options come “fast and furious” and some of them are head scratchers. As Saul would say, do your homework on you own.

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thank you Saul, & GR & others… you guys research and recommendation & sharing of your portfolios has been extremely helpful. I have to say that this is better than any other places I have looked for stock ideas/ reviews.

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So often I don’t recall exactly what got me to take an initial stake, or to buy more (without notes to help), but Upstart was a little different. I remember 2 key moments and an opportunity…

I remember you guys talking about Upstart as well the first time around and I dismissed it thinking a B2B tech company that only works with banks sounded like a small niche TAM. When it came up again right at the beginning of May, I distinctly remember opening a tab to their site and seeing 2 stunning claims: ~75% less defaults and ~25% more approvals compared to regular loan practices! Think about that… They instantly provide more customers with far less risk. I read on to find out that **borrowers get better interest rates too.**Talk about a win-win-win! This sells itself! I finally dug in a bit and bought just under 7% the next day. However, the confidence to buy wasn’t on these points alone. It was built on top of the investigations we are discussing in this thread.

Then, not too long ago (June?) I listened to an interview (there is a post here about it) where, in addition to impressing me with their reasons for taking on the loan industry and their vision for their tech, they made it quite clear their intention was to expand into as many new verticals as possible, as fast as possible. They had recently acquired the auto platform, and that vertical alone would increase their TAM by 5x! The price had also pulled back a little and I immediately doubled my position.

Just a few weeks later The price took another dip to around $108 and I added again to bring it up to my top-tier of holdings at around 16% alongside Datadog and Cloudflare. Only crowd strike was bigger at about 20%.

Even after trimming (for unimportant reasons) when the post-earnings rise was just breaking 20%, Upstart has grown in to my #1 holding!:

Upstart 	UPST	19.6%
Datadog 	DDOG	16.9%
Crowdstrike 	CRWD	16.3%
Cloudflare	NET	13.8%
Snowflake	SNOW	10.4%
Lightspeed 	LSPD	7.8%
Zscaler Inc	ZS	5.1%
Shopify Inc	SHOP	4.5%

…and I’m not selling another share anytime soon regardless of how much more it grows.

Thank you to everyone already mentioned, as well as everyone who participated in every thread, not just the upstart ones. This is just one more reminder of how special this board is that Saul built, and to all who help maintain it so rigorously!

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Not to beat a dead horse in thanking Gaucho Rico, but his take on his own website literally reads like a prophet predicting what would happen between NET and UPST. If you haven’t read it, here it is:

https://gauchorico.com/2021-07-31-portfolio-update/

Thanks for all the wisdom guys!

Long UPST

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I don’t know how many people there are like me, who lurk and read and act. On our behalf, a multitude of thanks for we have profited greatly.

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