3 Ways Upstart Just Crushed Earnings


When Holdings reached (NASDAQ: UPST) reported its second quarter results this week, the numbers took investors by surprise in the best possible way, pushing stocks up nearly 50% in just a few days.

The fintech company uses artificial intelligence to grant loans to banks. It rates borrowers using alternative metrics like where they attended school or their work history, and claims that this unique model can approve 175% more loans for the same level of risk. Having started out in unsecured finance like personal loans, it has recently expanded to auto loans. Here are three key points from the recent quarter that suggest its moves are paying off.

1. Revenue increased by over 1000%

Upstart went public in December, and investors are clearly enjoying the business model, with shares up around 600% since their first day of listing. Rapid revenue growth is one of the main drivers as the company continues to leverage its technology to grow.

Image source: Getty Images.

Over 97% of the company’s revenue is based on fees; it gets paid when its platform is used to create a loan for a bank. This means that Upstart is not exposed to credit risk because it does not lend the money itself; it is therefore an attractive way to play on consumers’ growing appetite for finance.

Metric

Q2 2020

Q2 2021

Growth

Income

$ 17 million

$ 194 million

1.018%

Data source: Company deposits.

Forecasts released by Upstart earlier this year estimated second-quarter revenue to be between $ 150 million and $ 160 million, so the company is growing faster than expected.

In fact, it just raised its revenue forecast for the full year from $ 600 million to $ 750 million – the second upward revision this year.

Metric

2019

2020

2021 (Estimate)

TCCA

Income

$ 164 million

$ 233 million

$ 750 million

113.8%

Data source: Company deposits. CAGR = Compound annual growth rate

2. Save the loan arrangements

The company’s growth trajectory appears to have accelerated this year after its shift to auto lending. Its auto refinancing platform is now accessible to more than 95% of the American population, with five new banking partners who have signed up to lend using Upstart technology.

In addition, it has doubled its car dealership footprint since the start of 2021. In the second quarter, it sold $ 1 billion worth of vehicles through Prodigy, a sales software technology specifically designed for dealerships that Upstart acquired for facilitate their transition to a car loan.

Dealers will be a key source of loan origination for the business, and Upstart will eventually be integrated with the Prodigy platform to enable an all-in-one sales and financing solution for auto dealers.

Metric

Q2 2020

Q2 2021

Growth

Origins of the loan (value)

$ 164 million

$ 2.795 billion

1,605%

Number of loans

12,000

287,000

2.291%

Data source: Company deposits.

While auto credit isn’t everything, it is America’s second-largest consumer debt market (behind mortgages), with nearly $ 1.4 trillion currently owed. Upstart still issues unsecured loans for consumers in need of personal loans, debt consolidation, home renovations, and medical financing, but the company views unsecured loans as an approximately 87% smaller opportunity.

In the second quarter, the company claimed that its artificial intelligence-based platform instantly approved 71% of all loans on a fully autonomous basis. This is part of its pitch to the banks, as most would be unable to develop similar tools in-house, so Upstart’s white-label platform makes a lot of sense.

3. More benefits

The third way Upstart crushed its profits was its profitability. Analysts expected the company to generate $ 0.25 per share in second quarter earnings, but topped those estimates by 56% to deliver $ 0.39. Many young tech companies experience losses for years as they grow their businesses, but investors are witnessing the potential scale of Upstart as it drives bottom lines, not just top results.

Metric

2019

2020

First semester 2021

Earnings (loss) per share

($ 0.03)

$ 0.00

$ 0.50

Data source: Company deposits.

As of Friday’s close, Upstart had a market cap of $ 15.8 billion, which means it is trading at 21 times expected earnings for 2021 – that’s not cheap, and it’s reasonable to call back. in question the valuation of the company. However, as sales and profitability continue to rise, today’s prices could prove surprisingly reasonable for long-term investors with a time horizon of at least five years.

It’s not often that you find a relatively young tech company harnessing artificial intelligence that also turns out to be profitable. The test is how it now performs in much larger lending markets – but so far so good.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.



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