Deep Dive: Upstart Holdings
What do they do? Upstart is trying to disrupt the credit score and give people loans based on “true” risk. They work with banks and consumers to get people loans at better interest rates, and get people to banks that default less.
History? Was founded in 2012 by three people: Dave Girouard, Paul Gu, and Anna Counselman. They went public in December of 2020.
Industry? There are $3.6 trillion in consumer loans that originated each year. SoFi, credit bureaus, even their bank partners could be considered competitors. Basically, anyone who is analyzing credit risk.
Management? 0% held by insiders (a bit strange), but Third Point Ventures owns almost 20%.
Valuation? (As of recording) P/S of 40, P/OCF of 300. Betting on growth here.
Earnings? 2020 sales grew 42%, projecting over 100% sales growth in 2021 while staying profitable.
Balance Sheet? $311 million in cash, $177 million in total liabilities (they keep around 2% of loans on their balance sheet)
Potential Competitive Advantages? Lending quality, data, asset-light were all things we talked about.
Potential Future Growth Opportunities? Other forms of lending, referral network, acquisition of Prodigy Software.
Highlights? Loved management, high margin, long runway for reinvestment.
Lowlights? Lending can turn into a commodity, hard to identify whether they truly have a “data advantage,” lots of competition.
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Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.