What I did about Upstart.
I usually don’t give mid-month updates because I want people to learn to think for themselves and not just follow me, but Upstart was, and is, such an important company to the board, I thought that I should give this update.
In late Sept or early Oct I was over 31% in Upstart. I decided I wasn’t comfortable with such a huge position in any one company and over the past month and a half I started gradually trimming it in fits and starts, so that, in spite of the price still rising, it was down to 26% at the end of October (Lightspeed was 7% at the end of Oct which gives you my releative confidence levels). Going into earnings I had about a 23.4% position in Upstart, still my largest.
Then came earnings. While I was out of my Lightspeed position within 24 hours, I had no such implulse with Upstart. I haven’t bought or sold a share, and it is currently about 20.4%, about one point above DataDog, my second largest. I didn’t sell any because I didn’t see any need to and I didn’t add any, even after the sell off, because I thought 20% was enough. Especially for a non SaaS company
Why didn’t I sell the way so many others did? Let’s look at some numbers:
Revenue was $228 million, up 250% yoy. To put that into words that are perhaps more intuitive, that’s half way between tripling and quadrupling!
Fee revenue was $210 million, up 235% yoy, again more than tripling.
Transaction volume of loans originated on the platform up 244%, also more than tripling.
Operating income was $28.6 million, up 134%.
Net Income was $57 million up 367%, more than quadrupling and almost quintupling, from $12 million. These are positive numbers folks, not losses.
Adj EBITDA was $59 million, almost quadrupling from $15.5 million
The Adj EBITDA margin was 26% of revenue, up from 24%.
So why in the world would anyone have sold out of this company???
Here’s what the guidance had been for some of these numbers:
Revenue of $215 million
Adj Net Income of $30 million
Adj EBITDA of $32 million
Clearly they beat them all, net income and adj EBITDA by huge percents, but revenue they only beat guidance by 6% (getting better at predicting).
Let’s look at sequential:
Revenue was $194 last quarter, and $228 this quarter, so it “only” rose by 17.5%. That’s not a trivial gain by any means. It’s a run rate of up 91% per year. But let’s see what guidance was for next quarter. It was $265 million. If they beat that by 6% (which I would consider the absolute floor), we are talking $281 million, or a 23% sequential gain, or a run rate of up 129% (more than doubling). And, if they just beat by 8%, they will be up 25.5% sequentially, or a run rate of up 148%. Etcetera, you get the picture.
Should we run away from this company??? This is a company that isn’t at 30 or 50 times revenue, but well under 20 times. It’s not at the end of its TAM but just starting out up the S shaped curve. They mentioned in passing that they had a fraud attack, which they warded off with no financial consequences, but every company on earth has daily attempts at breaching it. Big deal.
So that’s why I stayed in my Upstart position. They had told us that auto wasn’t ready to kick in yet, and it wasn’t, but we knew that. Half way through this quarter more is apparently happening