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No. of Recommendations: 9
"One way to quantify it is...if you thought of a system that was completely random as 0 and a system that was omniscient at 100. Our view is most lending systems in the consumer world are at about 2, and we believe our system reasonably is at about 10. So we're 4 to 8 times more accurate than a traditional lending system but we're only 10% towards what is theoretically possible. There's always some randomness in the world so you can't get to 100% predictive but we are literally just scratching the surface of what's possible with AI."

wheelzofsteel

Thank you for posting the quote. It really is an eye-opener. Imagine ! He said most lending systems are at a 2. I noted his remark during the Conf call that he though FICO scores were poor underwriting tools but 2 out of 100 is worse than poor. If what he says is accurate , and it is likely so, we won't be worrying about banks or other competitors to UPST for quite a while.I'm also amazed to learn that he feels he is only 10% of the way there. Wow.

It also occurs to me that things change. Today's predictive data points gradually (rapidly?) go out of style. Habits and mores change and new kinds of data appear which become better indicators for decision making. So in view of this insight I fully expect Upstart to keep and even expand its lead and strengthen its moat for quite a while yet going forward. ( Does anyone ever go backward?)

Perhaps I will raise my stake

cheers

draj
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No. of Recommendations: 60
Revenue of $121, up from $64 million was up 90% and up 39% sequentially!!!!

Guidance for the year was raised from $500 million to $600 million!!! Or from up 115% to up 158%, from $233 million last year.

Guidance for next quarter was $155 million at the midpoint, up 28% sequentially, which they are sure to beat.

Contribution Margin, which I think is something like gross margin, was 48%, up from 38% last year.

Adjusted EBITDA was $21 million up from about $4 million same quarter last year.

Adj EPS was 22 cents. Their adj EPS for ALL of last year was just 23 cents.

Wow, what a report. You can't say I didn't tell you in advance! 😀

Saul
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No. of Recommendations: 4
The stock looks cheap for a company growing revenues at more than 100% YoY. Glad I loaded up on this, and bought more on the dip yesterday.

Congratulations on your timing . I notice that UPST is up 17% in after hours. This is great. I also loaded up on UPST but that was May 3. So I am about even on the transaction. I thought about adding today but was so heavily committed I couldn't do it. C'est la vie.

cheers

draj
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No. of Recommendations: 0
UPST earnings was very impressive. One thing that jumped out at me and would like other's opinion. In slide 6 they report $800M of vehicles sold through Prodigy in Q1. Given $626B in auto loan originations seems Prodigy has only 0.5% of the market. UPST did $1.7B of loan transaction volume and should do about $9B of loan transaction volume this year. So, it seems Prodigy's existing loan business does not add a lot of loan volume.

Long UPST, 2ish%
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No. of Recommendations: 2
Because of a slowdown in lending in the 2nd quarter of 2020, Upstart posted 17.4 million of total revenue Q2 21 guidance of $155 million will mean +790% YoY! How about that as a comp!

-HugoStocklitz (long UPST 16%)
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No. of Recommendations: 20
A really great earnings. They are clearly going to beat $600m, so we could be looking at a company doing about $700m in 2021. A multiple of 20x would be fair if they can keep their growth north of 50% for 2022.

What I find really exciting is that the CFO/CEO have clearly communicated that they are still operating against headwinds, mainly the stimulus checks. From Q3/Q4 this should turn into a strong tailwind as more small loans are needed and there is more demand to spend in travel, leisure, home etc.

I am also becoming to see the CEO, Dave Girouard, as a visionary but also a great story teller and salesman ala Jeff Green, George Kurtz. I recommend everyone having a read of the earnings call, its littered with positivity and statements about how a lot of future growth lies ahead, which after all, is what we are all about...

"Despite softer loan demand from consumers due to government stimulus programs, almost 170,000 loans were transacted by our bank partners in Q1, more than double the volume from just two quarters ago. Not unusual to see fast growth in a fintech company, but it's quite rare to see that growth paired with real profits"

"Our optimism for the future comes from two facts: first, we continue to have a likely backlog of projects that will improve our funnel throughput and lead to more growth in the future; and second, we don't see competitors on the same AI-centric journey that Upstart is on"

"As I said last quarter, we believe Prodigy (Auto loans) will enable Upstart to tap into one of the world's largest buy-now, pay-later market opportunities."

I was one of the lucky ones to top up yesterday and made Upstart my biggest position but as I said at the start, I think end of year we're looking at a lot bigger company so I don't think anyone is late to the party here.
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No. of Recommendations: 9
On the last question of the CC, the CFO seem to imply they were expecting just under 30% QoQ growth through the end of the year.

If they report 28% QoQ growth through the end of the year, they will end up with ~ $730 million in revenue or 213% growth vs the 114% they initially guided for.

It would look something like this:


03 06 09 12
Q1 Q2 Q3 Q4 FY
121,345.00 155,000.00 199,000.00 255,000.00 730,345.00
YOY growth 90% 793% 204% 194% 213%
Seq growth 40% 28% 28% 28%



And it includes nothing from the Prodgiy acquisition. And 28% is the midpoint of next Q's guidance.

Here's the Q&A

Ron Josey -- JMP Securities -- Analyst

Thanks for the questions. Just we're getting a lot of questions here on just the guidance. And so Sanjay, can you unpack a little bit more of the increase in the annual guidance and wondering if auto is just maybe a larger part there given, I think, Dave, you mentioned making fast progress overall, not just at Prodigy, but now in 33 states in general. So just any more insights, Sanjay, on the increase in annual guidance from the $500 million to $600 million would be great.


Sanjay Datta -- Chief Financial Officer

Sure, Ron. I mean maybe just to put a point on it, it still includes really nothing meaningful from the auto side. We continue to be, I guess, you might call it an incubation mode there, developing the operations, expanding the Prodigy dealer footprint. So we're still not counting on any meaningful contribution.

A lot of it boils down to the kinds of things that Dave talked about every single week. We are watching improvements to the credit models, improvements to the verification models, improvements to the acquisition-targeting models. And as those improve, as those drive our daily and weekly numbers, we propagate them through with some statistical confidence interval, if you will. And so we've had a very good quarter, obviously.

We're obviously leaving the quarter on a good front. Our guidance for the next quarter is a little bit under 30% quarter over quarter, and we're propagating that strength through to the end of the year.
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No. of Recommendations: 5
What is the opinion here on the cyclical nature of the business? They're obviously very dependent on the demand for loans and interest rates..Which is very much against the nature of our preferred SaaS companies that have that recurring, recession resistant revenue.

I have a small position because of the hypergrowth and reasonable valuation (but maybe the valuation is reasonable due to my concerns hereabove?) but I am not confident yet to make this a big position.

Secondly, the 7 year head start to potential competitors is nonsense to me. The marginal value of each additional customer diminishes with the number of customers. What's the difference between data points from 1 million customers versus 10 million customers? The latter model has more information but it doesn't really add that much additional valuable information. Once you reach a certain "data threshold", the additional data no longer offers significant extra value.

Any comments?
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No. of Recommendations: 4
Hi Rubenslash,

The more I read about Upstart the more I see that that Upstart is Creating a vertically focused SaaS Market. They’re providing the bases on which others take financial risk. At Tickertarget.com, Bert Hotchfield weighs heavily the benefits of this first mover advantage in an AI driven business model. My rudimentary understanding is that the more information added makes a better product. Being the First (Bank Agnostic)Mover, Upstart will likely continue to accrue ever greater amounts of information to feed into their AI product. Being a first mover in an AI driven vertically oriented cloud company creates an enviable bottom line because of near zero marginal costs for continued dominance(if being a horizontally oriented cloud company means there is a requirement for building out infrastructure).
Despite Upstart having greater customers concentration than I would like, almost every other criteria needed for me to make Upstart a full position is met (My criteria is outline here in this post https://boards.fool.com/jason8217s-jan-port-summary-34738748.... As far as I can tell, Upstart has no AnnualRecurringRecenue/DollarBasedNetRetention of any kind yet. This and the high level of the customer concentration may be explained with how young and small Upstart is ; so, I’m keeping this somewhat under a full position. I’ll be looking closely at customer concentration going forward. And if Revenue growth picks up at either ZoomInfo or Docusign I’ll be trimming Upstart and adding to those due to my valuing ARR more than just revenue. Although it’s not difficult to imagine Upstart developing up sells to their current customers, as the company learns to apply its technology beyond unsecured loans and auto loans, to include appliance loans, mortgages, and so much more.
And as far as customer count, how many underwriters does a company need as long as there is a large market for what those underwriters are selling (the vast majority are sold to institutional investors), I’m more interested in the market for the securities these underwriter are selling into.

Best,

Jason
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No. of Recommendations: 1
What is the opinion here on the cyclical nature of the business? They're obviously very dependent on the demand for loans and interest rates..Which is very much against the nature of our preferred SaaS companies that have that recurring, recession resistant revenue.

I agree that increasing interest rates are going to hit UPST harder than other SaaS stocks. However, increasing interest rates are going to affect the valuations of all SaaS stocks. If the CPI number keeps printing like it did this morning, look out below.

I suspect that a lot of posters here are going to be shocked at how reasonable the valuations of these once high-flying SaaS stocks become by the end of the year if inflation keeps on roaring like it did today.
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No. of Recommendations: 2
What's the difference between data points from 1 million customers versus 10 million customers?

Each customer over a longer period is important. As an extreme example, 1 million customers over 12 months is way better than 12 million customers for 1 month.

GR
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No. of Recommendations: 1
So, it seems Prodigy's existing loan business does not add a lot of loan volume.

There were a couple of questions about this during the CC. Short story is their 2021 projections do not include significant if any contribution from Prodigy. They stated that they did not expect meaningful contribution from the auto business in 2021, and they were projecting 30% Q/Q growth to the end of the year......

cheers

draj
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No. of Recommendations: 6
I was mistaken when I stated in my previous post that upstart had no Annualized Recurring Revenue.

On Upstarts S1, they state that they have three areas of revenue collection.

1.Upstart charges 0.5% to 1% of the loan amount to the loan Holder (banks making up 22% and The 100+ institutional Investores that Regularly fund the loans make up 76%)as an ongoing annualized servicing fee

2.Upstart charges Banks a referral fee of 3-4% f the loan principle amount.

3. Upstart charges a Platform Fee to Bank partners of 2% of the principle amount of each loan.

Thanks for this great thread,

Jason
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No. of Recommendations: 1
Once you reach a certain "data threshold", the additional data no longer offers significant extra value.

Any comments?

Is this statement a conclusion based upon the nature of AI models? Or is it just an assumption based upon the supposition that at some point you have all the data you need.

Is there in fact a theoretical point of diminishing returns for training an AI model in general or a loan underwriting model in particular or does each set of new conditions offer opportunities for further selectivity refinements.

How did you arrive at your conclusion?.

draj
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No. of Recommendations: 34
draj,

Is there a point of diminishing return for AI? The answer is yes, but it is not that simple. Look at Google search queries vs. say Microsoft or Yahoo! Anecdotal, but time and time again I am forced back to Google (despite hating to use them) because their search results are just that much better. Why are they better? Better modeling, sure. But also they have that much more data to ingest and fine tune their models with. This despite the fact Microsoft and Yahoo! each have billions of queries as well. Seems the diminishing return is not so much a thing in search.

However, diminishing return is a real thing in deep learning models. It is something project managers in AI plan for so as to not overtrain their models. Will this be an issue in the market that UPST is pioneering? Good enough is good enough? Maybe, but I don't think it is that simple of a question to answer. Here is a quick technical article on it: https://clear.ml/blog/quantifying-diminishing-returns/

Bank of America, as an example, may be able to do it in-house as they have large volumes of data one would think. However, that would be internal to BoA and BoA will hardly have the focus and talent in staff to create the algorithms and running the proper data to make it so. But yes, theoretically, diminishing return is a thing in deep learning models.

History tells us, however, that this concern will not materialize as a material threat to the first mover in a market like this. Thus, I have been a buyer and not a seller of UPST. I will follow the numbers because I can access the scientific data in regard, but I am an outsider and when I get myself in trouble is when I try to over think things.

Tinker
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No. of Recommendations: 3
History tells us, however, that this concern will not materialize as a material threat to the first mover in a market like this. Thus, I have been a buyer and not a seller of UPST. I will follow the numbers because I can access the scientific data in regard, but I am an outsider and when I get myself in trouble is when I try to over think things.

Tinker

Thank you for sharing your insights on the subject of AI models. I was commenting on an earlier post by Rubenslash who in turn questioned the assumption that Upstart's head start in AI for loan underwriting was really not as great as some were claiming. He argued it seemed that once a bank or any other model builder reached a certain level of data input nothing further could be obtained and so therefore Upstarts advantage would be dissipated . That seem to me to be not quite true at this time because my impression is we ,or Upstart, despite their experience of 7 years is still in early stages of ultimate model development.

As you suggest there is no conclusive answer to the question of how much data is enough to train a model to its ultimate capabilities. Any such answer would be stated in complex mathematical terms different for each case. An infinite amount of data I would assume is more than enough. But for this type of underwriting model my intuitive feel is that we've not come near the upper limit of useful data. So Upstart's head start and access to multiple bank sources makes it the the go-to purveyor of underwriting intelligence for now and for the foreseeable future..


So I've taken an 8% position in UPST and am debating whether or not to increase my stake. I have several ways to do that but for the moment I'll just observe matters while the market continues to rattle along.

Your comment that history tells us that effective competition as others catch up is not likely to materialize in a case like this was enlightening. For me that is new and reassuring information and it also provides a bit of an answer to the questions I was concerned about.

cheers

draj
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No. of Recommendations: 25
On the issue of diminishing returns, the CEO spoke to this on a CNBC interview in December. He sees both a wide lead for their model and a lot of room for improvement.

"One way to quantify it is...if you thought of a system that was completely random as 0 and a system that was omniscient at 100. Our view is most lending systems in the consumer world are at about 2, and we believe our system reasonably is at about 10. So we're 4 to 8 times more accurate than a traditional lending system but we're only 10% towards what is theoretically possible. There's always some randomness in the world so you can't get to 100% predictive but we are literally just scratching the surface of what's possible with AI."

https://www.youtube.com/watch?v=q1CfCpK9Bb0
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No. of Recommendations: 9
"One way to quantify it is...if you thought of a system that was completely random as 0 and a system that was omniscient at 100. Our view is most lending systems in the consumer world are at about 2, and we believe our system reasonably is at about 10. So we're 4 to 8 times more accurate than a traditional lending system but we're only 10% towards what is theoretically possible. There's always some randomness in the world so you can't get to 100% predictive but we are literally just scratching the surface of what's possible with AI."

wheelzofsteel

Thank you for posting the quote. It really is an eye-opener. Imagine ! He said most lending systems are at a 2. I noted his remark during the Conf call that he though FICO scores were poor underwriting tools but 2 out of 100 is worse than poor. If what he says is accurate , and it is likely so, we won't be worrying about banks or other competitors to UPST for quite a while.I'm also amazed to learn that he feels he is only 10% of the way there. Wow.

It also occurs to me that things change. Today's predictive data points gradually (rapidly?) go out of style. Habits and mores change and new kinds of data appear which become better indicators for decision making. So in view of this insight I fully expect Upstart to keep and even expand its lead and strengthen its moat for quite a while yet going forward. ( Does anyone ever go backward?)

Perhaps I will raise my stake

cheers

draj
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No. of Recommendations: 8
As a wise man once said, if there is one thing that is for certain then it is change. While we can be sure things change, things, people follow certain patterns. This is where AI comes in. It tries to learn from the past and constantly adapt to change. That is why FICO is useless today and it is also why early mover advantage is huge. Look how incredibly difficult it has been for anyone.. anyone with theoretically far better data (mapping companies, tech companies, car companies etc) .. to catch up to Tesla self driving technology. It is all about data, their accuracy, and past patterns.. including patterns of change. I have zero concern that UPST will be caught up to by big banks. If anybody does catch up to them it will be companies like Facebook or Google. And if I were one of them, I'd just buy UPST outright. So I'm not worried about FB or GOOG competition either really.
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No. of Recommendations: 3
FYI I believe the lockup on Upstart expires on 6/14, which may partly explain the recent weakness in the stock price. Hope this isn't OT for the thread, but thought people might want to know.
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No. of Recommendations: 6
He said most lending systems are at a 2. [on a scale of 0 to 100]

One possible interpretation: the CEO, as the main salesman for the company's stock, is dramatically misrepresenting the capabilities of competing underwriters, overstating his company's relative capability, while also painting an overly optimistic picture of the untapped potential for the future.

Rob
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No. of Recommendations: 3
To address Contribution Margins and how they might be considered like Gross Profit Margins as was suggested on Saul’s last post on this thread I went back to the S1. I get the feeling that this is true?

From the Upstart S1 page 97: Contribution margin from banks initiating loan process is 67% due to less customer aquisition costs; Contribution margin from loans initiated on The Upstart.com is 44% (so that’s a big slice going to Credit Karma?).
The last nine months the average contribution margin increased from 15% to 31% to 44% due to a mix of increased efficiencies. Upstart does see a ‘medium term’ future of more loan origination coming from banks. So that’s good.

I assume that with improvement in Upstarts product and the scaling of their customer base of contribution margins will improve. I wish I knew why they don’t break out Gross Profit Margins in the call?

Best Jason

FYI: The three area where Upstart collects revenues is on page 96. Maybe I’ll finish the rest of it eventually🙃

Best,

Jason
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No. of Recommendations: 0
FYI Upstarts 10k uses the same verbiage but doesn’t break out the percentages for each area of revenue contribution (not that I could find?). I was able to copy a bit from the 10k (unable to copy S1, weird right🤔 I took pictures and had to transcribe, that’s why my explaination in my last two posts were truncated).

IMO, There wasn’t really anything in the 10k that was in the S1 that I thought needed to be shared at this time. Just wanted to point out that what is in the 10k is factually equivalent; but, without updated numbers since last September.

Best

Jason
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No. of Recommendations: 1
An earnings report/guidance bump like this causing a drop in the stock price is pretty nuts... these stocks just keep tracking the implosion in the ARK funds.

Bnh
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No. of Recommendations: 36
"these stocks just keep tracking the implosion in the ARK funds"

This is an excellent point that I don't think many pay enough attention to... not much of the movement in any Saul stock is due to the actual fundamentals of the individual stock... I believe most of the movement you see is due to trading in the ETF's that own the stocks... in Saul stock's case, probably mostly the ARK funds. As people/funds withdraw 100's of millions from the ARK funds, Cathie is probably just hitting a sell button that is selling these stocks across the board.

I also suppose further, that there are several managers on Wall Street that do not appreciate the attention Woods receive last year for her stock picking... and probably sell/and/or/short the ARK funds just to make her look bad...

And even further... it was Bill Hwang of Archegos (he of record setting margin calls just a while back) that provided all of the seed money to Woods to start the ARK funds... so you can probably suppose that he was a big holder of the funds. I don't know if it's been said, but I think we can suppose that his liquidation has probably meant much selling of the ARK funds. So I think we can safely assume that a lot of the weakness in the Saul stocks lately have nothing to do with the companies, or even interest rates, or inflation, or COVID... but just because some crazy trader put on some super crazy margin bets that went bust.

So I'm just pointing out... on days when all these companies seem to move in lockstep, it has nothing to do with these companies being worth 4% more or less than yesterday, but that someone just invested or withdrew $100M from an ARK fund...
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No. of Recommendations: 0
I also suppose further, that there are several managers on Wall Street
that do not appreciate the attention Woods receive last year for her stock
picking... and probably sell/and/or/short the ARK funds just to make her
look bad...


Wondering just how that would work. And what would be the
ramifications for them going forward. Risking funds under
management just to make another fund manager look bad?
Doesn't seem like a very prudent (or responsible) way
to proceed.

If resulted in a loss or a reduced gain, well, just a "Sorry, my bad"?

Sounds like young (or not so young) punk MBAs on steroids.

vez
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No. of Recommendations: 13
"these stocks just keep tracking the implosion in the ARK funds"

Another thought provoking idea. Seem like there is a new one every few hours. And every few hours my portfolio hits a new low for the month. Now half my holdings are underwater and I'm down about 18%YTD.

The situation calls for keeping perspective. Things may get even worse but its a short term phenomenon at least relative to an investment time horizon. Since I subscribe to the proposition that quality will out I plan to ride it out. Selling now would be the worst thing to do. I am also resisting the urge to pick up bargains even though I have an ETF portfolio in reserve. Catching a falling knife is dangerous for one thing and making a dent on average cost per share for any of my holdings requires a major further commitment.

So I'll check things out again in a few weeks, or months or maybe next year. No crystal ball available........Hang in folks.

cheers

draj
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No. of Recommendations: 14
not much of the movement in any Saul stock is due to the actual fundamentals of the individual stock... I believe most of the movement you see is due to trading in the ETF's that own the stocks.

. and probably sell/and/or/short the ARK funds just to make her look bad...
__________________________________________________________________________

With all due respect, I've pointed this out before (and got axed for being off topic).

It would be naïve to expect these stocks to go up infinitely at the rate of 5% per day (why should they be worth more on Tuesday than Monday and then more on Wednesday than on Tuesday?

I make a good part of my income by selling, at a profit, stocks I have previously bought when I feel they are overvalued and then trying to find a bargain to put the chips on. No bargain? I hold the chips until one comes along.

I'm guessing there have been a growing number of people who watched their ARK holdings going up to irrational levels (everything does have a finite value) and became nervous about continuing to play musical chairs and simply cashed in before the rush. This is not about making Cathie look bad, this is about making/conserving money.

Remember, the stock market can remain irrational longer than you can remain solvent (Economist John Maynard Keynes).

Jeff
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No. of Recommendations: 2
I picked up some more UPST yesterday 'on the cheap' as I found their results reported this week (particularly Rev growth) to be outstanding. In the meantime I found this info on Seeking Alpha which may have accounted for the drop yesterday:

"Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM), and U.S. Bancorp (NYSE:USB) are among a group of banks that will start providing customer deposit account information as part of a government-supported initiative to give more people access to credit cards, WSJ reports. The idea is to use alternative data, such as bank account information, to determine credit risk for those people who don't have a traditional credit score. The pilot program is expected to start later this year and about 10 banks have agreed to exchange data."

So competition may be on the way slowly, very slowly I would say.

... and for what it's worth, I added to my small ARKW holding yesterday too. When I no longer have the the inclination to manage a tech portfolio, I want ARK to do it for me
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No. of Recommendations: 6
A few posters have brought this up above, but mostly, the discussion got lost in the value of AI and diminishing returns of more experience. By "this", I mean simply that there is limited ARR tied to this revenue model. Their revenue model seems highly transaction-driven, i.e. fees for loan origination. They need to be involved in more and more loan processing to achieve growth. Right?

The pandemic and associated stimulus have put more cash in consumers' pockets, and we see that credit card balances are down overall. Mainly because people aren't traveling, vacationing, etc. So the need for these types of consumer loans will only go up as the credit card balances become higher, as things reopen.

But what effect would rising interest rates have in general on the number of loan originations? Both for consumer loans as well as car financing growth to come? Could new loan apps dry up say 10-20% if we saw meaningful rises in interest rates?

Seems that an unreal ER was followed by an inflation report scare, that hammered UPST more than the general SaaS stocks. Inflation -> higher interest rates -> less lending?
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No. of Recommendations: 4
See below from 10-K on how they make money. Seems like there has been a lot of questions on this and the 10-K is pretty clear. They make money on fees from origination but they also make money throughout the life of the loan..

"Our revenue is primarily comprised of fees paid by banks. We charge banks referral fees for each loan referred through Upstart.com and originated by a bank partner, platform fees for each loan originated, regardless of its source, and loan servicing fees as consumers repay their loans."

I wouldn't say recurring revenue is a large majority of their revenue but it is there.

Also in an interview I recently watched the CEO, he mentioned that the current guidance is solely based on AI improvements, not an increase in bank partners. When you think about the potential of numerous banks partnering with them and expansion into other verticals (auto, mortgage, etc) on top of AI improvements, there is a LONG runway that is currently undersold by management. I don't personally worry about a slowdown from rising interest rates and I certainly wouldn't let the potential of rising interest rates keep me from investing in this disruptive company.

-Junomean2
Long UPST
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No. of Recommendations: 3
I certainly wouldn't let the potential of rising interest rates keep me from investing in this disruptive company

I agree with this, particularly because any raise in interest rates in the medium term is gonna be 25 - 50 bps so hardly a deterrent to anyone intending to purchase a car
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No. of Recommendations: 0
No. of Recommendations: 3
See below from 10-K on how they make money. Seems like there has been a lot of questions on this and the 10-K is pretty clear. They make money on fees from origination but they also make money throughout the life of the loan..

Yes, but it appears to me that the recurring fees are not the major source of revenue and are rather a smaller percentage. Has this been broken out definitively?
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No. of Recommendations: 19
I need to remind myself sometimes that UPST is not SaaS. Unlike ZM or CRWD or NET they do not have as much recurring revenue and you can't just assume this quarter's revenue as a base for next quarter. When we look at most SaaS companies we just think about sequential growth as if there's no way they'll actually go down in sales. That's just not the case with UPST. For the upcoming quarter I'm not so concerned, but for the latter half of the year it could be an issue.

Last year when ZM guided to flat revenues in Q3 and Q4 after their blow-out Q1 earnings, we all knew it was a complete low ball because the customers who signed up in Q1 and Q2 were not going to leave en masse within a few months. That revenue was almost guaranteed.

UPST doesn't have such guaranteed revenue. The likelihood of a 2020 Q2 type drop in revenues is much higher for them than CRWD or ZM.

Maybe they have insight on some new deals that are in the works, or the auto loans will start making a meaningful contribution in Q3/Q4, but it's still much more difficult to predict.

I believe this is all reflected in the valuation, but that uncertainty combined with the fact that it's a recent IPO with a pending lockup expiration and that it seems to be one of the momentum crowd targets that cause volatility in both directions are reasons that I'm keeping this as a small-medium sized position. If they were true SaaS having reported the same growth numbers and guidance then I would have bumped it up to an oversized position.
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No. of Recommendations: 1
I believe UPST's TAM is massive enough that only a severe economic contraction would cause a decline in revenue. Its just getting started in a very large market, entering a new market [auto loans] 6x times the consumer loan market. And there are other types of consumer loans to enter in this large and growing country. And foreign markets also.
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No. of Recommendations: 1
Per their S-1, on origination they get (1) $400-500 per loan for "Referral Fee", (2)$200-300 for "Platform Fee," which sound non-recurring, and (3) they also get 0.5% - 1% per year "Servicing Fee," which does sound recurring, but not much.
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No. of Recommendations: 4
My point was even if UPST got all 100% of Prodigy's current auto loan volume of $800M it will add only about 45% to their current loan volume of $1.7B this Q. Of course, Prodigy can grow its footprint in the auto dealer market and with it UPST's loan volume can grow but I am not sure how easy it is to penetrate the auto dealership SW market - it may be harder than personal lending where digital fintechs have grown quickly mainly by consolidating CC balances. Remember their typical customer is one with very low credit (i.e. sub-prime loans) and not those with excellent credit who can easily get loans from the auto manufacturer or any other bank. This limits their TAM as well.

Long UPST ..... around 3%
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