Reached (UPST) has seen a major growth acceleration over the past year and could see even greater growth if it succeeds in auto lending. In this clip from “3 Minute Stocks Updates” on Motley Fool live, recorded on March 30Motley Fool contributors Toby Bordelon and Rachel Warren discuss the company’s recent earnings and upcoming growth opportunities for the AI lending platform.
Toby Bordelon: Quick refresh here in what they do. It is an AI lending platform. They connect consumers to partner banks. They don’t actually lend, what they do is provide the AI-based algorithm and technology to analyze loans, help banks make better lending decisions. You can see what is happening here. They think this model is good for consumers and good for banks. Since consumers are getting higher approval rates, many of these loans are instantly approved. There is no waiting. You make your request and you’re good to go. It’s also more inclusive. It allows access to credit for many demographic groups, which is a big concern right now. For banks, this is a highly automated experience. This makes it more efficient for them. This saves them money in the loan process. Let’s look at what they did. Here are some key results from the last fiscal year that they just reported. I look at those numbers and, wow, look at those growth rates. Just to look at these revenues compared to the previous year. We’re talking revenue up 264%, operating revenue up almost 1100%, which is just amazing if you think about it. The difference between that revenue and the increase in operating revenue to show you how well they’re doing to cut costs as they grow. Lots to watch what is happening or what has happened in the past year. Here are some key operating metrics. You see this general upward trend over time in terms of trading volume, the number of loans left there, that dollar trading volume right there. Beautiful. It’s accelerating. You see some acceleration in their growth. Over time, you can see that the light green is income. The yellow is their net income, and you just see it growing over time. Really good to see there. They see more opportunities as they roll out auto loans in the future. They are looking at this overshoot of around $1.5 billion for fiscal 2022. This is new to them, a new opportunity for growth. I love this. Some concerns about their algorithm. We have seen over the past year people with some skepticism; does it really work? I think their revenue growth, which we’ve seen over the years, suggests there’s something here. If they can make it work with car loans, there’s a lot to like about the years to come.
Rachel Warren: It’s interesting. I think there’s been a lot of hype around Upstart, and it certainly seems to be gaining a lot of traction in the market it’s in, but the company is facing its fair share of competition. SoFi (SOFI) is a competitor that comes to mind. Do you see the company as a clear winner in this space to invest in, or do you see any major competitive headwinds that investors should be aware of?
Bordeaux: I wouldn’t say they’re the big winner yet. I think it’s too early. I think you’re going to see more and more AI-based decision making in this space because of the efficiency and benefits it brings. I think that’s definitely the trend. They have a head start, but I think it’s way too early to say they’re going to be the big winner. That said, they have a relatively small share of the overall addressable market because it’s so new. I think there is room for more competition and for them to still win, to still do good. Once the market matures more over the next 5-15 years, this will be more of an issue. It will be more of an interesting conversation about who is going to be the winner or what the competition looks like. But for now, I think it’s just about bringing the technology to market, increasing adoption. The more companies you have onboarding banks saying, “Hey, this is the way to go,” I think Upstart could benefit.
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