Upstart - A great long term growth stock
In fintech, Upstart is definitely not a hidden gem; its stock has risen by more than 8x since its IPO in December to hit an all time high at $165. However, among the many companies that have gone public recently or planning to do so, it stands out as one of the very promising ones.
Upstart was founded to modernize and personalize the $3.6T consumer loan industry. The current loan approval process is an antiquated, one-size-fits-all process with over 90% of the creditors mainly using a FICO score to asses credit worthiness. This is resulting in less than half of Americans being able to secure affordable loans, although 80% have never defaulted and millions are unfairly rejected or pay far too much interest.
Enter Upstart - a leading AI lending platform partnering with banks to expand access to affordable credit. Instead of the thirty criteria that the banks collect to make their decisions, Upstart can take 1600+. Upstart considers more unique and personal variables like education, loan app interactions, family history etc. to come up with a more accurate evaluation of the lending and credit risk. Upstart partners with banks. By leveraging Upstart's AI platform, Upstart-powered banks can have higher approval rates and lower loss rates, while simultaneously delivering the exceptional digital-first lending experience their customers demand.
It's easy to see why there's a lot of optimism around this stock. First, it's already profitable. In 2020, it delivered double-digit percentage growth and management is very upbeat about replicating this in 2021. Second, its moat keeps getting deeper thanks to a virtuous data flywheel. As it processes more loan applications, its algorithms improve. This helps raise the approval rates and lowers the loss rate and the APRs. This attracts more users and boosts the cycle. Third, it has massive growth opportunities. Upstart's core segment is unsecured loans. Compared to other loan products (e.g. auto loans, credit cards, it has a much smaller total addressable market (TAM). Upstart management is doing a terrific job using the $250M+ it raised from its IPO to make strategic acquisitions and accelerate its expansion into the other loan verticals. It has already agreed to acquire Prodigy Software - a small company that will help accelerate its entrance into the largely untapped auto loan industry. Some $1T is spent on car purchases in the U.S. every year -- most of those buys are financed. Upstart offered its first auto loan late last year and will use Prodigy to ramp up the national rollout of its auto loan program for car dealers and banks. Finally, most of Upstart revenues comes from referral fees. Only 2% of the loans are issued by Upstart. The rest is funded by its banking partners. This makes Upstart very asset light and have a low exposure for defaults.
Upstart was founded to modernize and personalize the $3.6T consumer loan industry. The current loan approval process is an antiquated, one-size-fits-all process with over 90% of the creditors mainly using a FICO score to asses credit worthiness. This is resulting in less than half of Americans being able to secure affordable loans, although 80% have never defaulted and millions are unfairly rejected or pay far too much interest.
Enter Upstart - a leading AI lending platform partnering with banks to expand access to affordable credit. Instead of the thirty criteria that the banks collect to make their decisions, Upstart can take 1600+. Upstart considers more unique and personal variables like education, loan app interactions, family history etc. to come up with a more accurate evaluation of the lending and credit risk. Upstart partners with banks. By leveraging Upstart's AI platform, Upstart-powered banks can have higher approval rates and lower loss rates, while simultaneously delivering the exceptional digital-first lending experience their customers demand.
It's easy to see why there's a lot of optimism around this stock. First, it's already profitable. In 2020, it delivered double-digit percentage growth and management is very upbeat about replicating this in 2021. Second, its moat keeps getting deeper thanks to a virtuous data flywheel. As it processes more loan applications, its algorithms improve. This helps raise the approval rates and lowers the loss rate and the APRs. This attracts more users and boosts the cycle. Third, it has massive growth opportunities. Upstart's core segment is unsecured loans. Compared to other loan products (e.g. auto loans, credit cards, it has a much smaller total addressable market (TAM). Upstart management is doing a terrific job using the $250M+ it raised from its IPO to make strategic acquisitions and accelerate its expansion into the other loan verticals. It has already agreed to acquire Prodigy Software - a small company that will help accelerate its entrance into the largely untapped auto loan industry. Some $1T is spent on car purchases in the U.S. every year -- most of those buys are financed. Upstart offered its first auto loan late last year and will use Prodigy to ramp up the national rollout of its auto loan program for car dealers and banks. Finally, most of Upstart revenues comes from referral fees. Only 2% of the loans are issued by Upstart. The rest is funded by its banking partners. This makes Upstart very asset light and have a low exposure for defaults.
When the stock dipped to $95 earlier this week, I added more to my portfolio. It's certainly not a bargain but it's reasonable if you're investing long term. This young and already profitable company is making big strides in the massive personal lending and auto loan space, and it will only get more profitable over time as it scales. So, if you're looking for a promising fintech stock for the long term, Upstart is certainly worth your consideration.
Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.
Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.
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