Over the course of about two weeks Upstart value dropped enough so that my entire stake was about 18% underwater and then it recovered. I bought more all the way down so that when UPST rebounded , not only did I have a handsome profit but it had become my second largest holding, in fact not far behind the largest.
My intuitive response was this was too much too fast. When you sense a red light flashing it is often a good bet that something is up. So I sold 20% of my holdings. Upstart is now my 3rd largest holding.
Interestingly I have been contacted by my broker who wants to borrow all my shares in two accounts because there is a very large number of investors (?) who plan to short Upstart and can’t seem to find enough shares to borrow… I sense a red light flashing. Someone thinks the rapid uptick in Upstart price is not sustainable and they are evidently planning to help adjust the price.
I have no idea what is going to happen but I think it is useful to be aware of any and all background noise.
My broker also borrows shares for the purpose of lending to shorts. I’ve been lending out shares (for a modest recompense) of most of the great names we all know and love on this board for the past couple of years. Hasn’t hurt them a bit, I must say!
• For a long term investor it does not matter much
• For a trader the mid March gap might fill which might be a great entry point if it ever happens
• ARK Invest might combine the two, long term hold with tactical trading (despite having a FinTech ETF which is a bet against traditional banking, ARK ETFs don’t hold any UPST which I find odd since applying AI to lending is not traditional)
• The 435% growth in five month (since IPO at $26) is not sustainable which can only lead to a lot of volatility but since the “rotation” seems to have ended and things are back to normal (growth beating value) shorting UPST seems extra risky [I think shorting is plain stupid, limited upside, unlimited downside]
Hi draj, someone on the board reported that all his shares were lent out by his broker to people shorting. But that was a week ago, before it rose 65%. Clearly, part of the rise was a short squeeze. Those poor guys who shorted it with borrowed shares! And from what you say, there are a lot of people who have shorted it again now, which puts a floor under it as, by definition, each of those shorted shares have to be bought back, so that’s a lot of guaranteed future buying. As for me though, I try to just stick with the fundamentals and not overly pay attention to the noise.
Saul
PS - It was RoyGeeBiv, and it was exactly a week ago, and he heard from his broker in the morning so they had shorted it JUST BEFORE the 65% rise!!! Here’s what he wrote:
I received a broker notification this morning stating that all my UPST shares were borrowed for lending. Apparently the short-side demand is increasing. This is just FYI. It does not affect my outlook for Upstart, nor should it affect yours. Do not panic.
As you can see, shorts can be awfully stupid at times, just like anyone else.
Hi draj, someone on the board reported that all his shares were lent out by his broker to people shorting. But that was a week ago, before it rose 65%. Clearly, part of the rise was a short squeeze. Those poor guys who shorted it with borrowed shares! And from what you say, there are a lot of people who have shorted it again now, which puts a floor under it as, by definition, each of those shorted shares have to be bought back, so that’s a lot of guaranteed future buying
Half my shares were lent out by my broker a week ago, and at that time the interest rate was 2%. Several days ago, the other half was lent out. The interest rate has increased steadily and is currently 19%. According to my broker, the interest rate increases are based upon supply and demand. It will be interesting to see how this all plays out, but I admit it is tempting to sell some shares.
Short squeezes could be very rewarding for long term holder of very strong fundamentals company like Upstart. FY21 EV/S of 20x at current valuation for a company growing at 100%+, ~80% GM and large optionality with Prodigy project has a long way to go IMO.
Tesla is a great example of the world’s most spectacular short squeeze. Robinhood was like a lifeline for that company and retail investors drove it to the moon.
I think right now the sentiment is still negative on growth stocks and hedge funds think they can short the entire segment as we go into the summer and the volumes are low. I am prepared for more volatility all summer long. Maybe we hit bottom, but maybe not? The long-term trend is strong for any stock of these hyper-growth stocks that have a massive TAM, and digital product so it can scale exponentially in a rapidly growing market.
$UPST just like many fintech plays is benefiting from the continued irrelevancy of physical location. And that’s not coming back, ever.
I received a broker notification this morning stating that all my UPST shares were borrowed for lending. Apparently the short-side demand is increasing. This is just FYI. It does not affect my outlook for Upstart, nor should it affect yours. Do not panic.
As you can see, shorts can be awfully stupid at times, just like anyone else.
Saul
Thank you for bringing this to my attention. I missed it the first time around.
Some folks question the wisdom of shorting altogether. Far be it from me to pass judgement. Personally I see opportunity. Lending stock generates cash and if UPST drops enough I’m ready to buy again.
It would be a mistake for people to be very concerned about excursions in the price of UPST. If one is aware that some are shorting the stock heavily then it helps keep things in perspective.
And from what you say, there are a lot of people who have shorted it again now
As of yesterday, I’m earning 19% APR on those loaned shares (subject to change). That’s over 2x the interest rate when the shares were initially lent out.
Income rate changes for a loaned security are most frequently due to fluctuations in the supply and demand for that security.
Long UPST.
🆁🅶🅱
post tenebras lux For not in my bow do I trust, nor can my sword save me.
As of yesterday, I’m earning 19% APR on those loaned shares (subject to change). That’s over 2x the interest rate when the shares were initially lent out.
Income rate changes for a loaned security are most frequently due to fluctuations in the supply and demand for that security.
I have a 6.8% position in UPST, and I have an agreement with my broker that allows them to lend out my shares. My UPST shares have not been lent out yet. I’d like to get the 19% interest rate so hopefully they’ll be lent out soon. My main point, though, is that there’s not so much demand for shorting UPST as my shares are still available for loan.
I was just contacted by my broker to see if I would be interested in lending out my shares of UPST. I will say this is the first time that I’ve been contacted about lending shares. Like others, they offer a 19% interest rate so I’m hoping mine are lent out soon as well.
My main point, though, is that there’s not so much demand for shorting UPST as my shares are still available for loan.
Might depend what brokerage firm your UPST shares are with, and whether other clients of that same firm want to short UPST. Seems to me there’s enough demand, at least with my firm, for people to pay 19% interest currently, when just a week ago the rate was
Here is an SA report that tells us that short interest in UPST has once again increased. I think they will fail again.
FWIW, have been in Upstart since December, thought i had introduced it here in February and know that i introduced UPST to Bert in a series of email exchanges with him on beginning Feb 1. He had not heard of the company at that point as it received little attention at its 12/2000 IPO. He had plenty on his plate at the time and didn’t get to it for a while. After the March 17-19 short squeeze, he decided, what’s the point, but then got interested with the subsequent price pullback.
In any case, it’s surprising to me that short sellers can’t find better candidates that Upstart. I’m not complaining. My longer term conviction on this company is as high as it gets for me so i have appreciated the opportunities to add.
You’d think shorts would look elsewhere after having been slapped silly in March and then again over last few days.
I guess they think the expiring lock up is why it will turn out different this time. My guess is the selling will disappoint unless UPST explodes to over $200 between now and then.
What rational thinker doesn’t believe Upstart will do $700M+ in revenue this year and $1.1B+ next year. The stock is easily worth EV $20B. People who know, know these projections are conservative.
What rational thinker doesn’t believe… The stock is easily worth EV $20B. People who know, know these projections are conservative.
You think the stock is easily worth another 150% from here in the near-term? Based on corporate projections and a ‘beat and raise’ set of assumptions that the Street is well aware of for all high-growth SaaS and fintech? We all already know they are lowballing this year.
I see around $110m in true long-term debt and a $8.5m market cap. Saying this is easily worth $20bn seems like more than a stretch.
Over 5 years, sure, it’s definitely possible but I don’t think that was your timeframe, feel free to correct me.
“You think the stock is easily worth another 150% from here in the near-term?”
My calculation is quite different.
Fully diluted shares outstanding were 95 million last i looked. That’s $14.3B market cap at $150 per share. If you are looking at Yahoo, the share count is wrong.
Saul,
I must say that your returns are really impressive! Congrats!
I’m wondering if you have a place where you record all your trades in real time or is it just a list of positions at the end of the month posted on this board. Thanks!
I decided to go with Upstart vs. ZoomInfo. I am lucky however still don’t know why ZoomInfo is not doing as well considering its superior financial metrics in margin and free cash flow. This bears the question what is more important to a growth stock. Right now, all I can see if revenue growth rate and acceleration of revenue growth is secret sauce to select the right growth company. Any other thought?
Hi gwsong,
I don’t think you could expect ZoomInfo to do “as well” as Upstart considering that Upstart is essentially guiding to a tripling of 2020 revenue in 2021 (up 200%), while poor ZoomInfo’s revenue is “only” up 50%. However, I too have been struck by how ZoomInfo gets so little love from the market considering it’s growing at 50% with 50% free cash flow margins! I think there is something of a negative feeling and skepticism about a company that assists marketing, even B2B marketing, because all of us so hate getting unsolicited calls on our phones.
I had thought that perhaps ZI getting as new or expanded customers such stars of our board as Okta, Zoom, Shopify, and Docusign, as well as marquee names like Toyota, Uber, SAP, Forbes, AmazonBusiness, etc, would influence people but it hasn’t happened yet.
In addition to Saul’s point about its product possibly having a negative connotation for investors, I wonder if people read about what it does and simply think there’s no way it could be putting up high growth and never dig into the numbers.
Readers here wouldn’t do that, but the majority of retail investors may not think it’s “sexy” enough to take the next step and see the massive growth.
Saul,
Two things give me a pause on ZI: 1) I watched the CEO interview video, he talked about operation efficiency, which is quite surprised to me. I am working in a traditional mfg industry and we extremely focus on operation efficiency and cost containment because we are in a fairly competitive and mature industry, but I don’t want a hyper-growth company to focus on that at this stage; 2) their second market entry is in recruiting, I just don’t see they can compete with Linkedin, no way based on my experience with job hunting. At least, this tells me ZI’s current market is limited and they have to get into second market. Upstart on the other hand, only have a handful of bank customer today but yield such high growth already, they still have thousands of regional banks to tap, as well as auto market, potential home mortgage. With all-star executive teams, if Upstart can execute this right, I see them to be next Shopify by similar business model. I noticed Upstart for some time, but hesitate to take a position as it is several times of IPO price, until you bring this to board. I appreciate you share this idea to the board.
“I watched the CEO interview video, he talked about operation efficiency, which is quite surprised to me. … I don’t want a hyper-growth company to focus on that at this stage”
Can you explain what you mean and why? Isn’t this another way of talking about operational leverage or improving GM? If so, that is something I want every company to focus on. It is one of the more attractive things about SaaS as a business model. It can easily scale faster than costs, which is operational efficiency, right?
