Upstart: Adding To My Position After Last Week's Bloodbath

seekingalpha2022-05-17

Dilok Klaisataporn/iStock via Getty Images I have written a couple articles on Upstart (NASDAQ:UPST), with both being very bullish on the rapidly growing company. My first article covers the company's...

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1nquisit0
2022-05-18
1nquisit0
Yes
1588d1c0
2022-05-17
1588d1c0
Up

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My first article covers the company's...</p>\n\n<a href=\"https://seekingalpha.com/article/4512361-upstart-q1-earnings-why-adding-stock-after-bloodbath\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"UPST","symbol_name":"Upstart Holdings, Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4512361-upstart-q1-earnings-why-adding-stock-after-bloodbath","article_id":"2236121088","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2236121088","pubTimestamp":1652788800,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Dilok Klaisataporn/iStock via Getty Images I have written a couple articles on Upstart (NASDAQ:UPST)","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"UPST":"Upstart Holdings, Inc.","BK4561":"索罗斯持仓","BK4166":"消费信贷"},"translate_title":"暴发户：在上周的大屠杀后增加了我的地位","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"UPST":1},"content_text":"Dilok Klaisataporn/iStock via Getty Images I have written a couple articles on Upstart (NASDAQ:UPST), with both being very bullish on the rapidly growing company. My first article covers the company's AI business model, its founder leadership, and high insider ownership. The second article second article was a couple weeks ago before earnings. I was very bullish on the company and think the long-term future of the company is still very bright, even after mixed earnings and guidance. Any time you own a stock that gets slaughtered after earnings like Upstart did last week, it is a frustrating experience. Do I sell now and ask questions later? Do I stay the course? Do I add to my position at these prices? All these questions hit me after the last week with Upstart. I forced myself to bury my emotions and take some time evaluate the situation. I was also curious to see what other contributors had to say about the market’s reaction, as I think there are a lot of valuable insights to be gleaned from different viewpoints on Upstart. The biggest questions I try to answer for myself are these: Is the business broken? Does that kill the long-term bullish thesis? In the case of Upstart, I think the answer is no. Was I wrong to be bullish at $100? In the short term, absolutely. In the long term? I don’t think so. If you look at the actual business, I don’t think reduced guidance for 2022 kills the long-term case for owning shares of Upstart. My typical articles always include an investment thesis, a description of why I’m bullish, bearish, or neutral. This one is going to be a little different, as I wanted to cover the earnings release and the massive selloff. I will talk about the quarter itself and the guidance that apparently has everyone pessimistic on the long-term future of the business. Earnings It seems like Q1 earnings was glossed over to focus on the guidance revision that led to the massive selloff last week. The first thing that I always look at is revenue and the bottom line. Revenue went from $121M to $310M in Q1. This was larger than the expected $300M. Net income also nearly tripled from 2021, which is impressive no matter how you look at it. They also increased bank partners from 42 at the end of 2021 to 57 at the end of Q1, and increased car dealerships from 410 at year end to 525 at the of Q1. Bank Partnerships (Upstart) This is going to be a big piece of the bull case for Upstart. Continued growth in bank and automotive partners will help drive the long-term growth of the business. One of the things that contributors have commented on the expansion in the loan balance on Upstart’s balance sheet. From the end of 2021 to the end of Q1, loans went from $252M to $598M. This is certainly a factor that I will be keeping an eye on in the quarters to come. If that number continues to expand, it will certainly become an issue for a smaller company like Upstart. I would love to see that number go down over the next year, because I think the company should be focused on growing their service revenue instead of expanding the balance sheet with loans receivable. Guidance The biggest reason behind the selloff was lowered guidance. It was dropped about 10%, which really isn’t that much when you consider where the company was just a couple years ago. For Q2, the company predicted $295M to $305M in revenue and $1.25B for the full year 2022. Consensus was $335M for Q2 and $1.4B for the full year. While lowered guidance is a tough thing to see for long investors, I think people are missing the forest for the trees. I didn’t buy Upstart to try to sell in 3 to 6 months for a profit, and I added to my position after the recent selloff. With a market cap at $2.8B, I still think the business has impressive long-term upside that could surprise investors. Valuation After the selloff, Upstart is basically back to the IPO price from December 2020. I thought the valuation was cheap at $100, and here we are under $40. What I will say is that if Upstart is earning $4 a share in 2024, it won’t be a $40 stock. Price/Earnings (FAST Graphs) The normal P/E ratio and growth rates are definitely going to compress in the next couple years, but I still think the long-term future of the business is bright. I think there is room for multiple expansion from here, and I think the company will be able to weather the economic uncertainty of the next couple years. Risks The biggest things I will be paying attention to with Upstart is the balance sheet and interest rates and the potential chain reaction there. If interest rate hikes lead to a recession, that would certainly have an impact on broader economic activity and Upstart's new volume for cars and other loans. If the balance sheet continues to expand with more loans on their balance sheet, then Upstart could be on the hook for bad loans which would likely increase if we do head into a recession. The best-case scenario is that the company can package and sell off loans to banks and other institutions, but I will be watching to see if the loan receivable line goes up for Upstart. That means more risk to their balance sheet and could lead to significant problems in a downturn. New Family Portfolio Weights I also took the opportunity to buy shares in the family portfolio after the recent selloff. They prefer dividend stocks, so I kept the position small, but I think the risk/reward is too appealing to pass up. Below is the new portfolio weighting after getting some new cash to put to work. Portfolio Weights (Author's Calcs) I have made a couple trades in the last week, adding to several existing positions, and starting a couple new ones as well. Upstart is one of the new positions, and I would consider adding at current prices if I don’t come up with better ideas before the next cash infusion. Conclusion Upstart is a business that could suffer with rising interest rates and an economic slowdown. That’s not a secret to any investor. However, I think the post-earnings selloff is overdone and investors might want to consider buying the massive dip. A solid Q1 was lost in the shuffle of the reduced guidance, and I still think the long-term bull case is intact. Increased partnerships can help the business grow revenue over the next couple years. Q1 earnings wasn’t ideal, but I don’t think it represents the sky is falling scenario that played out last week. I think the company has a lot of potential and I have been buying and lowering my cost basis. Every investor should weigh the risk/reward for themselves, but I think shares of Upstart will be trading at higher prices in a couple years.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9023379220,"gmtCreate":1652875996360,"gmtModify":1676535178752,"author":{"id":"3553900041025922","authorId":"3553900041025922","name":"1nquisit0","avatar":"https://static.tigerbbs.com/3c22511f65f9157a35a7f105f2b1d9bf","vip":1,"crmLevel":5,"crmLevelSwitch":1,"authorIdStr":"3553900041025922","idStr":"3553900041025922"},"htmlText":"Yes","listText":"Yes","text":"Yes","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9023379220","repostId":2236121088,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9029594728,"gmtCreate":1652796417264,"gmtModify":1676535163078,"author":{"id":"4104481054115720","authorId":"4104481054115720","name":"1588d1c0","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"4104481054115720","idStr":"4104481054115720"},"htmlText":"Up","listText":"Up","text":"Up","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9029594728","repostId":2236121088,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":9,"commentSize":2,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2236121088"}