It’s no secret, one of the most anticipated and unpredictable earnings reports is coming out tomorrow. How will our love/hate relationship with Upstart evolve this time? Upstart reports after closing on Feb 15th. I’ve found it good practice to document my expectations in advance, so I know how to quickly react to earnings. Price action is often swift, so I want to take advantage of after hours trading. Posting it here in case anyone finds it helpful or has meaningful disagreement and rationale around why my expectations may be off base. I like to track and predict the metrics that the company include in the press release as “important” numbers. For Upstart this is a Revenue Growth, Contribution Profit (CP in millions), Contribution Margin (CM), Transaction Volume (TxVolume), Transaction Dollars (Tx$ in billions), Average Loan Size (AvgSize), and Conversion Rate (CRate). These metrics are somewhat different than our typical metrics for SaaS companies. We don’t have the recurring revenue, so in general all metrics are much more difficult to predict.
After a disappointing quarter, I think we often lose sight that this is still a company that has grown revenue sequentially by a minimum of 22% every quarter excluding the F20 covid quarters, when all financial institutions basically halted personal lending. They are still growing at an alarming rate and we have to expect volatility in numbers. So for this company, probably more than any of my other holdings, it will be important to react quickly. We’ve seen a couple dynamics at play, (1) Transaction volume is rapidly increasing (2) Loan size is rapidly decreasing. I’ll be paying close attention to see if there is any leveling off of the average loan size or if there is a continued rapid drop. Transaction volumes should keep rising quickly given the number of new financial institutions they have partnered with over the past few months. Interestingly their guidance is the strongest of any of my holdings. My current thought is that market was overly exuberant heading into earnings last quarter (inflating the stock price) and it’s a complete 180, with pessimism heading into this quarter (depressing the stock price). So I am very comfortable with my 14% allocation to Upstart headed into this report, as any surprise - think anything over 22% sequential revenue growth - could send us soaring again.
I also want to thank and recommend brittlerock’s recent post on why he’s long UPST: https://discussion.fool.com/why-i39m-long-upst-35052549.aspx
Upstart Earnings Expectations:
UPST Rev YoY SQoQ TTM YoY CP CM TxVolume Tx$ AvgSize CRate F19 Q1 22.24 F19 Q2 28.56 28% 50.8 F19 Q3 47.90 68% 98.7 F19 Q4 61.15 28% 159.8 23.4 38% 78.7 15% F20 Q1 68.01 206% 11% 205.6 25.7 38% 14% F20 Q2 13.31 -53% -80% 190.4 275% 4.3 32% 9% F20 Q3 62.86 31% 372% 205.3 108% 33.8 54% 80.9 15% F20 Q4 84.42 38% 34% 228.6 43% 41.4 49% 123.4 17% F21 Q1 121.35 78% 44% 281.9 37% 55.8 48% 169.8 1.73 $10,191 22% F21 Q2 187.30 1308% 54% 455.9 139% 96.7 52% 286.9 2.80 $ 9,761 24% F21 Q3 228.45 263% 22% 621.5 203% 95.9 46% 362.8 3.13 $ 8,628 23% **Mid-point Company Guidance:** F21 Q4 (G) 260.0 14% 47% **My Expectations:** Below <275 <20% <129 <47% <450k <3.8B <$8000 <22% Meets 275-285 20-24% 129-136 47-48% 450-500k 3.8-4.0B 8000-8500 22-24% Exceeds >285 >24% >136 >48% >500k >4.0B >$8500 >24%
*F21 Q3 Conversion Rate excluded fraudulant inquiries. Material impact to metric (23% vs 13.5% including fraudulent requests).
Keeping score, here’s how we’re doing this quarter, IMHO:
DataDog: Exceeded expectations! Cloudflare: Met expectations. ZoomInfo: TBD Upstart: TBD
I hope you find this helpful.
Daws (Long UPST ~14%)