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No. of Recommendations: 58
I am a silent lurker and a learner and have been following this board for more than a year. I should say that I have a learned a lot from this wonderful board and thanks to all the contributors.

I have a close to 10% position in Upstart and so I will be paying attention to what they have to say when they report on May 11th. Upstart (UPST) is cloud-based AI lending platform. GauchoRico introduced this company and recently Saul in his monthly update took a position in this company. This company is founder-led, disrupting traditional lending business. Their founders hold approximately 20% of the company. Their AI powered lending platform incorporates more than 1000 variables to automate the lending process unlike using a single metric like FICO scores. Their platform connects consumers, banks and institutional investors. Customers like their platform as they have 4.9/5 rating on Trustpilot. Although they acquired Prodigy software earlier this year, a first mover into automated process of originating and underwriting auto loans, Dave Girourd, CEO of Upstart stated that any revenue from this acquisition will probably not contribute to 2021 revenues.

See recent Upstart’s deep dive by Brian Feroldi and TMFstoffel.

See Saul’s April, 2021 portfolio update

This is directly taken from Saul’s April end Monthly Report-

“Quarterly revenue really took off in 2019, and the last eight quarters look like this. (You can spot that Covid quarter a mile away):

20 33 49 63
64 17 65 87

And they are guiding to $115 million this quarter, up 80% yoy and up 32% sequentially!!!!”

They recently signed Drummond Community Bank for personal and Auto loans on April,28th and

First National Bank for personal loans on April, 14th.

Customer Concentration Risks-

I think one has to keep in mind that the 2 biggest risks for this company comes from Cross River Bank (CRB) and Credit Karma. CRB accounts for a significant portion of their revenue. From their 10-K “Cross River Bank, or CRB, a New Jersey-chartered community bank, originates a substantial majority of the loans on our platform.”

“CRB, originates a large fraction of the whole loans sold to institutional investors under our loan funding programs. For the years ended December31, 2018, 2019 and 2020, fees received from CRB accounted for 81%, 80% and 63%, of our total revenue, respectively. We have entered into a loan program agreement that governs the terms and conditions between us and CRB with respect to loans facilitated through our platform and issued by CRB.”

Although it is encouraging to see that revenue contribution from CRB dropped from 80% to 63% from 2019 to 2020, it still is a potential risk. CRB on the other hand from what I learned is unlike any other community banks and has partnerships with other lending partners like Affirm and Rocket loans. But again, Upstart is just starting out to expand its business and probably it is normal to have significant customer concentration in the initial growth phase.

Another potential risk that was also highlighted by Bert in his article is the traffic from Credit Karma. Again from 10-K “A significant number of consumers that apply for a loan on learn about and access through the website of a loan aggregator, Credit Karma. The percentage of loan originations that were derived from traffic from Credit Karma was 38%, 38% and 52% in 2018, 2019 and 2020, respectively, and the percentage of loan originations that were derived from direct mail was 28%, 23% and 12%, in 2018, 2019 and 2020,respectively.”

“In November 2020, we experienced a reduction in the number of loan applicants directed to the Upstart platform by Credit Karma and a corresponding decrease in the number of loans originated on our platform, and we may experience additional reductions in traffic from Credit Karma in the future. If traffic from Credit Karma decreases again in the future as a result of this program or for other reasons, our loan originations and results of operations would be adversely affected.”

52% of loan originations from Credit Karma in 2020 (Credit Karma was acquired by Intuit in Dec 2020) is also a potential risk and the fact that Credit Karma can decide to reduce the traffic to Upstart platform can also hurt their revenues at least until they expand their platform to other customers. If they integrate Prodigy and open up their platform for auto-loans, they can have potentially unlimited avenues for growth.

Although I like what Upstart has to offer disrupting the lending industry, I think it is prudent to keep in mind of these risks. Any comments/insights on this will be much appreciated.

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