Fintech lender Upstart Holdings (NASDAQ:UPST) has only been a publicly traded company for a few months, but its performance has been nothing short of stunning. So far in 2021, the stock has gained more than 200%. In this Fool Live video clip, recorded on April 5, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why investors seem to be so optimistic about Upstart’s future.
Jason Moser: If you look at year to date, now, Upstart shares are up almost 250%. Just over to pull a quote from you, from that show back in January because I think it was the right thing. I think it was the right observation when we were talking about the risks with a business like this. You said, “I got to believe the biggest risk, it’s not just valuation, it’s got to maintain its growth, and there is a huge element of competition risk in this space.” I think in this world of these so many companies out there trading in 40 times sales, it seems like that’s the norm nowadays. Businesses that have yet to really bring any meaningful profits to the income statement, it does seem like with Upstart, it wasn’t just valuation. They have to really justify that valuation with the growth rates. It seems to this point at least, it seems like it’s maintaining that burden of proof. I’m not sure. What do you feel is the impetus behind this performance here so far with Upstart?
Matthew Frankel: For starters, the earnings report that they recently issued looked great. That wasn’t the No. 1 reason that the stock is, like you said, more than tripled year to date. But the numbers are worth mentioning. Revenue handily beat expectations. Their revenue was about $87 million, that was about $13 million more than analysts were calling for. Their margins expanded year over year, that revenue number was up 40%. They’re calling for 115% revenue growth in 2021. They grew 40% with the pandemic’s effects. That’s a pretty impressive year. But the real story was that they’re acquiring a company called Prodigy Software. I don’t know if you’re familiar with them?
Moser: I’m not.
Frankel: They provide automotive shopping experience. You said it correctly that last time we talked about them, I mentioned how competitive the personal lending space is. The auto lending space is not nearly as competitive, especially the online side of it. Every company is doing personal loans these days, it seems. I could probably ramble off a list of like 20 different Fintech companies making personal loans. I can’t really ramble off a list of that many companies that make auto loans other than the traditional banks. If I couldn’t name a traditional bank, I don’t really know where I would start that list. Prodigy is a company that provides a shopping experience for consumers in dealerships but like a high-tech version of it. The idea is, that this acquisition will really catapult Upstart into the auto lending space, which is a huge untapped market. The auto lending markets are just begging to be disrupted. Like you said, the personal loan market, about $300 billion in size, lot of competition in the Fintech space.
Frankel: The auto-lending market, $1.4 trillion. Not a lot of competition in the Fintech space. There aren’t many companies trying to do auto-lending better than the establishment. That’s really what the market is so excited about here. This really gets their proprietary AI-based lending technology into thousands of dealerships across the country. It really can jump-start Upstart’s auto-lending business.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.