Upstart: Massive Long-Term Upside

seekingalpha2021-09-24

Summary Fools rush in, but if you are a long-term investor, focusing on near-term volatility is a mistake. Better, faster, smarter: Upstart uses a cloud-based artificial intelligence platform to ...

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精彩评论

PS153
2021-09-24
PS153
this stock I have been watching it everyday go up and up...so bullish[强]
2c3154a7
2021-09-24
2c3154a7
Like
- Elon2:
  ok
ValuInvestor
2021-09-24
ValuInvestor
Nice
AminB
2021-09-24
AminB
Good

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Members of Big Dividends PLUS get exclusive ideas and guidance to navigate any climate.\n\nThe digital revolution is increasingly fueled bycloud-based artificial intelligence(AI), and its long-term growth potential is astounding. However from an investment perspective, investors often miss out on the best long-term growth opportunities because they are fearful of near-term volatility. Every investor needs to understand their own personal situation and goals. If you are a long-term growth investor, with the stomach to handle a wild near-term ride, AI lending platform Upstart (UPST) has massive long-term growth potential. In this report, we review the business, the market opportunity, valuation, risks and then conclude with an important takeaway about investing.\nAbout Upstart\nUpstart is an AI-driven, cloud-based, lending platform that connects consumer demand for loans with Upstart's network of banks. Upstart differentiates itself from traditional lending practices by using alternative borrower evaluation metrics that allow it to approve more loans, at better rates, and with low defaults. For example, 71% of Upstart loans are instantly approved and fully automated).\n(source:Upstart)\nImportant to note, Upstart generates the majority of its revenue from referral fees (~60% of total revenues). Specifically, Upstart charges banks referral fees of 3% to 4% (of the principal loan value) when a lender opts to use that bank. Not only is this an attractive revenue source, but it is low risk because Upstart is not making the loan—the bank is (therefore the bank has all the credit risk).\nAnother significant portion of Upstart total revenue (~30%) comes from platform fees. Specifically, Upstart charges banks ~2% of the loan amount when the bank uses Upstart’s platform.\nThe remaining ~10% of total revenue comes from other servicing fees (and a small amount of interest income).\nUpstart's AI Lending Model\nUpstart is the only major online lender that currently goes beyond the traditional FICO score in making lending decisions. For example, Upstart is able to assess borrowers based on where they went to school, their job history and other non-traditional metrics as you can see in the graphic below:\n(source:Upstart earnings presentation)\nAs Upstart explains on itswebsite:\n\n\"Lending is centuries old, but has changed little in recent decades. Traditional lenders use simple FICO-based models to decide who is approved for credit and at what interest rate. While simple and intuitive, these “scorecard” methods are limited in their ability to quantify risk.\"\n\nMassive Market Opportunity\nCloud-based AI lending is just getting started, and this is a massive secular trend with an extremely long runway for growth. For example, Upstart generated $194 million in revenue last quarter (up 108% year-over-year), but defines its total addressable(TAM)opportunity as much larger, per the following graphic.\n(source: Upstart)\nFor perspective, Upstart currently focuses on unsecured personal loans (such as credit card consolidation, home improvement loans, medical loans, wedding loans and moving loans) with sizes ranging between $1,000 and $50,000. And more recently has expanded into auto loans. However, there is a much larger market opportunity out there still, as Upstart continues to build out and improve its platform. Basically, Upstart has massive long-term growth opportunities, and the company is just getting started.\nLeadership\nWorth mentioning, Upstart was incorporated in 2012 (and became public in December of 2020), and it is run by co-founder and CEO,Dave Girouard. Dave was previously a big-wig at Google (GOOGL). He also worked at Apple (AAPL) and Booz Allen Hamilton. Having a founder-led business is another attractive quality of Upstart, in our view.\nThe company’s other co-founder,Paul Gu, runs Upstart’s Product and Data Science team. Again, we like founder-run businesses. Both Dave and Paul (along with other insiders) own a significant portion of the company’s business (i.e. we like to see skin in the game).\nValuing Upstart\nOne of the first things that investors notice about Upstart is the extraordinarily rapid ascent of the share price in recent months, especially sinceannouncingearnings last month (whereby the company beat earnings and revenue expectations, and significantly raised forward guidance).\n(source: YCharts)\nBut rather than looking simply at the share price, it is important to consider price in relation to other fundamental metrics, such as revenue and future growth expectations. For example, here is a look at Upstart's price-to-sales and forward price-to-sales metrics since going public.\n(source: YCharts)\nImportantly, you'll notice the wide gap between current P/S and forward P/S; this is a result of the high growth expectation/guidance from the company. However, looking only 1-year ahead doesn't nearly do justice to the true long-term growth opportunity that Upstart presents. For example, the company's very high growth rate can likely continue for many years into the future considering the massive TAM and differentiated product. This is where valuation becomes more of an art than a science considering if we extrapolate the growth rate several years (and beyond) into the future, the price-to-sales ratio quickly becomes quite low. For perspective, 24.4x forward sales is expensive relative to most publicly traded companies, but most publicly traded companies do not have anywhere near the high growth trajectory of Upstart (and 24.4x isn't really that high as compared to other companies with high sales growth trajectories and large TAMs).\nFurther, Upstart's growth is attractive because the margins are strong and the company is already profitable (many high growth companies have negative net income while they focus on growth).\n(source: StockRover)\nOverall, it is impossible to assign a precise valuation to Upstart (because the future is unknown), however it is not impossible to see the high growth trajectory, the large TAM, the attractive business model, and the potential for these shares to go dramatically higher still in the long-term.\nRisks\nVolatility Risk: No one knows where the stock market will be tomorrow or next month, but over the long-term it is likely going higher and Upstart is likely going higher at a dramatically higher rate considering its leadership position and the opportunities (TAM) that are ahead. However, the shares could go dramatically lower before going higher. For example, as the company notes in its most recent10Q:\n\n\"Our quarterly results are likely to fluctuate and as a result may adversely affect the trading price of our common stock.\"\n\nTechnically speaking, for the long-term investor, volatility is not a risk (it's often just the price of admission). And if you have the stomach to buy and hang-on, five years down the road there is a good chance you will be extremely happy you did.\nConcentration Risk:Credit Karma accounts for almost 1/2 of all loan origination so far in 2021. Per Upstart's10Q:\n\n...for each of the six months ended June 30, 2020 and 2021, 49% of loan originations were derived from traffic from Credit Karma. Our most recent agreement with Credit Karma dated November 6, 2020 provides that either party may terminate our arrangement immediately upon a material breach of any provision of the agreement or at any time, with or without cause, by providing no less than 30 days’ notice.\"\n\nIf traffic from Credit Karma decreases, Upstart's performance would be adversely affected. However it is important to note, the direct-to-Upstart revenue channel is growing rapidly (a very good sign).\nAnother concentration risk (noted in the company's 10Q) is that Cross River Bank and one other bank partner account for a substantial portion of the total number of loans facilitated by Upstart's platform and its revenue. However, as the non-FICO fintech lending space expands, the expectation is that this reliance will decline. For example, Upstart CEO Dave Girouard recentlysaid:\n\n\"he'd be shocked in a couple of years if we don't have hundreds of banks and credit unions on the platform.\"\n\nIn fact, if Upstart continues to overcome these concentration risks (which the company expects to) it will be a further catalyst for dramatic upside for the business and the share price.\nConclusion\nDespite recent share price gains, Upstart still has massive long-term upside potential. This is a business that sits in the early innings of a massive long-term secular trend, as we also wrote about in this recent article:3 Top Fintech Stocks(Secular Behemoths in the Making). Specifically, there is room to make lending better, faster and more profitable (for borrowers and lenders) and Upstart is a high-growth, profitable leader that is just getting started.\nYou may be wondering if it is too late to invest in Upstart (considering its impressive near-term rally). However, if you attempt to time a big share price pullback, you may never get a chance to invest.We dipped our toe inwith a small Upstart purchase back on September 1st (and the shares are already up nearly 50%), and we have no intention of selling anytime soon, considering the massive long-term upside for this industry and this stock (Upstart) in the years ahead.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":861977718,"gmtCreate":1632453000634,"gmtModify":1632722094708,"author":{"id":"3564565270877568","authorId":"3564565270877568","name":"PS153","avatar":"https://static.tigerbbs.com/2e185e8aa9ee6ee618f951b9141b9e40","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3564565270877568","authorIdStr":"3564565270877568"},"htmlText":"this stock I have been watching it everyday go up and up...so bullish[强]&nbsp;","listText":"this stock I have been watching it everyday go up and up...so bullish[强]&nbsp;","text":"this stock I have been watching it everyday go up and up...so bullish[强]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/861977718","repostId":1188265331,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":861944616,"gmtCreate":1632451897935,"gmtModify":1632722283785,"author":{"id":"3555557009386362","authorId":"3555557009386362","name":"2c3154a7","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3555557009386362","authorIdStr":"3555557009386362"},"htmlText":"Like","listText":"Like","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/861944616","repostId":1188265331,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5980789,"gmtCreate":1632461222205,"gmtModify":1634787289023,"authorId":3586922733730917,"author":{"id":3586922733730917,"idStr":"3586922733730917","authorId":3586922733730917,"name":"Elon2","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":861944616,"type":1,"supId":0,"prevId":0,"content":"ok","text":"ok","html":"ok"}],"langContent":"CN"},{"id":861944115,"gmtCreate":1632451864437,"gmtModify":1632722286785,"author":{"id":"4087361572396550","authorId":"4087361572396550","name":"ValuInvestor","avatar":"https://static.tigerbbs.com/5a962911d3cd0763a9f0cb01392cacd9","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"4087361572396550","authorIdStr":"4087361572396550"},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/861944115","repostId":1188265331,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":861945426,"gmtCreate":1632451825665,"gmtModify":1632722301790,"author":{"id":"3578345709902616","authorId":"3578345709902616","name":"AminB","avatar":"https://static.tigerbbs.com/95ef96141c0cae96be8b275bbce44d19","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3578345709902616","authorIdStr":"3578345709902616"},"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/861945426","repostId":1188265331,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":46,"commentSize":4,"repostSize":0,"favoriteSize":2,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1188265331"}