Is Upstart a buy?

It’s time to revisit a high-flying banking services name. Here is the breakdown of $UPST, otherwise known as Upstart.


Current Price: $107.38

52/Wk High: $165.66

52/Wk Low: $22.61


Market Cap: $8.1 Billion


Read below for the breakdown!


Upstart ($UPST) is an artificial intelligence lending platform that not only improves consumer’s access to affordable credit but reduces risks and costs for Upstarts lending bank partners.


The company is led by CEO Dave Girouard, who once led Google’s enterprise department. Girouard continues to deliver, with 71% of all Upstart loans being fully automated in Q4 of 2020 all the while keeping fraud rates at a minimum.

Recently, Upstart announced the acquisition of Prodigy Software, a major provider of cloud-based software solutions for the automotive industry.


According to management, the acquisition will quicken Upstart's goal of offering AI-enabled auto loans through the use of auto dealers nationwide.


“While Amazon and Shopify have modernized the online shopping experience, the auto industry has been left behind. Upstart is on a path to reduce the cost of auto financing, and we can accelerate this opportunity with a modern multi-channel purchase experience,” Girouard said.


Throughout 2021, Upstart has roared to the upside, rallying a strong 163% year to date. On the downside, the stock has pulled back just under 10%, leaving investors to wonder if Upstart is a buy.


Digging into the numbers, Upstart beat Q4 2020 expectations with an EPS of $0.07, better than the analysts EPS consensus estimate of $0.02. Looking to the future, analysts are estimating year-over-year EPS growth of 100%.



Revenues impressed as well, growing by a strong 39% year over year to $86.7 million. Breaking down revenues, total fee revenue was $84.4 million, representing 38% growth year over year.



As for income, Upstart reported $10.4 million in income from operations, representing a 196% increase on a year over year basis. Net income on a GAAP basis totaled $1 million for the quarter.


On the profit front, contribution profit totaled $41.4 million bringing the contribution margin to 49%, an improvement over the 38% contribution margin in Q4 2019. It is important to note that contribution profit increased by 77% year over year.


Adjusted EBITDA improved as well, increasing by 123% year over year to a strong $15.5 million. For comparison, the Q4 2019 adjusted EBITDA was $7 million.


Rounding out Q4, lending volume increased by 57%, with Upstarts lending partners generating 123,396 loans throughout the Upstart platform. As for conversion, Upstart reported a Q4 conversion rate on requests of 17.4%, better than the 14.9% in Q4 2019.


Taking a brief look at the full year, Upstart reported 42% year-over-year revenue growth, bringing FY 2020 revenues to $233.4 million. Total fee revenues increased by 43% year over year to $228.6 million.


On the income front, Upstart reported an FY 2020 income from operations of $11.8 million (Up 357% YoY) and a GAAP net income of $6 million.


Shifting into profit, Upstart reported an FY 2020 contribution profit of $105.1 million (Up 1115% YoY) and a contribution margin of 46%, a big improvement over the 31% in FY 2019.


Rounding out FY 2020, Upstart reported a 40% increase in lending volume, with bank partners generating a strong 300,379 loans throughout Upstart's platform. It is also important to note that conversion rates on requests increased to 15.2% from 13.1%.



Leadership was upbeat about the future.


“We believe virtually all lending will be powered by AI in the future, and we’re in the earliest stages of helping our bank partners successfully navigate that transformation,” CEO Dave Girouard said.


Looking ahead, management is expecting Q1 2021 revenues of $112 to $118 million and an adjusted net income of $13.4 to $14.2 million.


As for the full year, leadership is guiding for $500 million in revenues and a contribution margin of 41%.


Shifting into the balance sheet the numbers are solid.


Total Debt: $70.880 Million


Total Liabilities: $177.003 Million


Total Assets: $477.255 Million


Cash & Short Term Inv: $250.819 Million


On a valuation basis, Upstart does trade at a premium.


Price to Earnings: 1309.51x


Forward price to Earnings: 116.84x


Price to Sales: 33.42x


Price to Book: 26.32x


Price to Cash Flow: 1,204.46x



Given the numbers the analysts are neutral with a mean price target of $106.20/share, representing a -1.10% downside.


The high price target is $135.00/share, representing a 25.72% gain, while the low price target is $81.00/share, representing a -24.57% loss.


The big money is quite involved, with 57.63% of Upstart being owned by institutions. Top holders include Third Point, VK Services, and Stone Ridge Asset Management.


On a technical basis, Upstart could be presenting opportunities. According to the six-month charts the MACD is moving to the downside with significant momentum within a range of 4.08 down to 0.097.


The six-month charts are also indicating an RSI of 50.2 and CCI of -57.3426, both of which are on the low end.



In short, Upstart ($UPST) is a solid AI fintech disruptor with expanding revenues, a driven management team, and plenty of room for growth.


EAT - SLEEP - PROFIT


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.