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No. of Recommendations: 5
Nice to hear from you, Mostly.

What did you make of the Upstart delinquency thread?

As I posted, "speculations on speculations". I am not sure that comparing UPST delinguency rate to Lending Tree or other lenders is the answer, either. Perhaps it is "necessary but not sufficient". It is a complex issue in that there is a lot of data. Maybe not so complex in the big picture. Not to miss the forest while examining all the trees, how much value is UPST providing to lenders (as well as borrowers, of course). And yes, the answer is finally meaningful as a comparative to other providers of creditworthiness estimates. So that thread did identify test one, is UPST any better than FICO? And the proposed measure is whether they do better than Lending Tree. That is, if the banks can use the same technique as Lending Tree and match UPST performance, then UPST has no business.

But as you and others pointed out, mere delinquency rate means nothing if the total relevant characteristics of the securitized loan bundle are not analyzed. But I think there is another factor to weigh. What business is KNBR in? What value do THEY provide the customers of UPST (the buyers of the tranches)? My internet is down now, power is off, so I can't quote KBRA with 100% accuracy. But their mission is to provide accurate ratings on bonds and these securitized loans. I would go so far as to say that KBRA is obsessed with integrity and accuracy. As they gain data on UPST's process and performance, we should expect that the performance versus projection for loan performance should narrow. First, because UPST will be able to make credit worthiness judgments and second, because KBRA will be able to assess the quality of UPST's judgments. Both will cut the "safety factor". This will provide more and better loans to borrowers, and better secondary prices to UPST, and more predictable income to the purchasers of the secondary offerings. And the performance versus the projected performance of these bundles of loans will be comparatively worse over time. As long as they do not underperform, I see no problem.

I am glad that the issue was raised. Having more information is better (up to a point). So the thread did not keep me from buying, but that doesn't explain why I was interested in buying in the first place. The averages are not particularly compelling. I just looked (power back) and I see the DOW off 9%, NASDAQ off 13% and S&P off 16%. Is that right? We are not talking down 30, 40, 50% or more like the high growth stocks. We have the Fed, inflation, Ukraine, Taiwan. Sanctions locked and loaded and election campaigns starting around the time Q2's will be reported. Maybe not the time to be 1% cash. But I have taken such a beating that I am not looking at the next quarter or two. I need a year (or two) to recover. I saw two blurbs on CNBC pre market. According to Morgan Stanley’s Mike Wilson, the S&P 500 is vulnerable to a 10% plunge despite Monday’s late buying binge. He warns investors are dangerously downplaying a collision between a tightening Federal Reserve and slowing growth. This guy is apparently "the market's biggest bear." My gleeful reaction? As far down as I am? Down another 10%? Can you promise me that is the downside? :) And then Cramer was helpful by saying to avoid high growth because they are still overvalued. I mean, what, he is reading Dreamer her on Angels Fear to Tread? C'mon, man, give me a day to trade the OKE and SPG and the latest UPST.

So as I shift focus to a longer term game that I can "win", I have to focus on companies with tailwinds that might last for that term. I'm not sure about 3 to 5 years, but I'm not making judgments on projecting "second derivative information" to handicap next month's quarterly reports. I still think that data is a thing. I think that work force collaboration is a thing and operation platforms are a thing. Therefore, I think network security is a thing, and ecommerce is still a thing. So I project a security/performance bucket (ZS, CRWD, DDOG and to some extent NET). I see a data tools bucket (ZI, SNOW, to some extent NET). I see operating systems to guide flow of info and make processes visible (DOCN and MNDY). And UPST? I hate to say that you have to have faith. But if your horizon shifts to years from weeks/months, then you have to have something. You can't "know". You can make a judgment based on what you think you know and project that to what you "believe" will come to past. And that comes down to belief or faith in management and your own judgement as to what the more macro business trends are.

As to UPST, you have to believe that the process of evaluating credit worthiness is being disrupted. You have to believe that AI is a thing and not a Thing!tm You have to believe that UPST has an enduring advantage in providing this process to a much larger segment of banks--and hope for landing a major bank in order to make a multi-bagger. You have to believe that UPST management has correctly judged the capability of the software to evaluate car and mortgage loan performance.

Sorry for the incoherent rambling here. Let's take just two more steps--or maybe just one. From the above, the investment thesis is that UPST's revenue is going to grow and that it is going to grow at a rate, say even 25%/annum, that will more than meet my needs. Growth has been 13% quarterly, right? Can we be confident enough of 6% Q-o-Q to be invested in UPST? But I need to see the fairly near future where UPST has EPS. Remember 1yrPEG? Can we foresee 30% y-o-y increase in EPS based on 25% revenue increase? Fair value p/e of 30. Does this find a warm place in Dreamers heart? Value?

If I were a worthy poster, I would now present the info in
, 
format. But, what you see is what you get. Executive summary is that 25% revenue growth for 3 years doesn't get me where I want to be. I need 35% to 40%. 40% should give a share price of $340 in 3 years. 25% gave me only $110.

I hadn't realized that UPST does not report COGS. At least not that I could find. 100% gross margin. But in addition to Sales and Marketing, General and Administrative, and Engineering, the report Customer Operations. I see that as generally the Cost of Goods Sold. And using that, the gross margin is 85%.

If you are still with me, you need to get a life. :) I might become dark energy here on the board, because with 1% cash, what do I have to say? Maybe if I trade the SPG and OKE positions or tweak and reallocate those non-UPST positions I might have something to contribute. Or comment on Dreamer's wild machinations.

Lurkingly Yours,

KC
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