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- Manlobbi
Stocks A to Z / Stocks E / Essex Property Trust (ESS)
No. of Recommendations: 3
This seemed like an attractive story, a couple of years ago when the share price peaked over $300, with ideas of revolutionizing lending by using AI to get a better idea of credit risk than some of the primitive tools that have been around for decades. And that was when AI had not attracted much mainstream attention.
And now, it sometimes seems all we hear about is AI, with the idea that it will revolutionize all sorts of aspcts of our lives.
So why has Upstart done so poorly? Is it because AI has just not panned out that well? Or is it because it's just not that proprietary? If anyone can use AI, maybe Upstart's headstart doesn't really count for much?
Just thinking out loud, and wondering if people who follow the company more closely have any insights into why Upstart hasn't done better, and whether there is some reason to still be optimistic about this company.
dtb
No. of Recommendations: 4
...wondering if people who follow the company more closely have any insights into why Upstart
hasn't done better, and whether there is some reason to still be optimistic about this company...
I've been long Upstart for several years and follow it closely. When you ask why Upstart hasn't
done better, I take it you mean why hasn't the stock done better. Two quick answers -- (a) a few years
ago the stock was crazy overvalued and (b) there's a lot of smart money that for the last two years
has been heavily betting on Upstart's demise.
As for reasons for optimism about Upstart, I'd shelve stock performance for the moment and focus on the
business. How does it create value? How has it performed and what do we expect going forward? There's a
lot to unpack there with no easy answers.
Ears
No. of Recommendations: 2
When you ask why Upstart hasn't
done better, I take it you mean why hasn't the stock done better.
...
As for reasons for optimism about Upstart, I'd shelve stock performance for the moment and focus on the
business.
I was referring to the business, actually. I agree that the stock price probably got way ahead of itself, but a few years ago, I think investors were very optimistic not just about share price appreciation but about the potential of this business to outperform in the lending market. When I look at revenues aver the last few years, they don't seem to justify that optimism - 2020: $229m, 2021: $801, 2022: $907m, 2023: $560m; 2024 Q1: $138m. Same thing with gross profits - 2020: $204m, 2021: $734, 2022: $665m, 2023: $398, 2024 Q1: $99. Over the same time period, the share count has gone from 17m to 85m, so the employees are doing well, but for an outside shareholder, it's hard to see how this can be called a successful business if it's unprofitable AND revenues are barely up from 3 years ago.
Of course higher interest rates don't help them, but I see no reason to be confident that interest rates are going to come down significantly, with fairly persistent inflation and long-term rates not much lower; overnight rates are 5.3% with a long-term average rate of 5.42% percent between 1971 and 2024.
Or is there something that has been holding back Upstart's business that might allow for more optimism in the next few years?
dtb
No. of Recommendations: 1
Or is there something that has been holding back Upstart's business
that might allow for more optimism in the next few years?
This business has two attractive features -- it can highly leverage its fixed costs
and also operate like a toll booth. They are still learning, tuning, and expanding
their offering. That will take time. Much more time perhaps than most investors have
patience for these days.
Ears
No. of Recommendations: 1
Anyone have any insights on why this popped suddenly?
--Gabriel
No. of Recommendations: 4
Anyone have any insights on why this popped suddenly?
Upgrade from Wedbush analyst from Underweight to Neutral and price target from $10 to $45.
Purchase commitment from Blue Owl Capital for $18 billion in loans over 18 months.
So Chief Legal Officer Scott Darling could sell $5 million worth of stock.
Ears <long UPST>
No. of Recommendations: 2
earslookin said responded to why the stock popped last month: Purchase commitment from Blue Owl Capital for $18 billion in loans over 18 months, along with an analyst upgrade and a note about an insider cashing out $5m.
The Blue Owl announcement was big. Upstart has been building up their capacity to continue to offer loans through the business cycle, not just when the industry has an appetite for short term loans. This will help keep them from getting constrained by availability of money to lend, like they were over the last few years. Lack of money to lend was a big problem for them, though not the only problem.
Prior to that announcement, the taming of inflation and the beginning of interest rate cuts by the Fed changed the prevailing wind on that front, putting the wind in Upstart's sails instead of blowing against them.
Now the official results are trending up, as reported in their earnings yesterday, and I assume maybe some shorts are being forced to cover.
Explosive stock price rise of 45% so far today, at the moment. Glad I've held on, lol.
No. of Recommendations: 3
DTB's post from May highlighted some serious concerns about Upstart's business:
"
I agree that the stock price probably got way ahead of itself, but a few years ago, I think investors were very optimistic not just about share price appreciation but about the potential of this business to outperform in the lending market. When I look at revenues aver the last few years, they don't seem to justify that optimism - 2020: $229m, 2021: $801, 2022: $907m, 2023: $560m; 2024 Q1: $138m. Same thing with gross profits - 2020: $204m, 2021: $734, 2022: $665m, 2023: $398, 2024 Q1: $99. Over the same time period, the share count has gone from 17m to 85m, so the employees are doing well, but for an outside shareholder, it's hard to see how this can be called a successful business if it's unprofitable AND revenues are barely up from 3 years ago.
"
The skyrocketing share count over that time period is my biggest concern, along with the share buyback program that plowed company funds into supporting the stock price while handing out so many millions of shares. Share count mentioned in the recent press release was 91.7 million, so the trend continues. Most of the growth in diluted share count occurred from 2020-2021 from 17m to 94m, then it dropped to 83m in 2022, before gradually climbing to current levels.
I'm not sure details of the massive dilution from 2020-21. Hopefully the company raised some serious cash from that as well as rewarding insiders.
I do believe in the business model and the growth opportunity. The share count climb has the potential to eat up some of the growth, but explosive growth would overwhelm that and deliver good returns. I'm planning on riding the favorable trend of dropping Fed rates and inflation for at least a little while. I may take some profits though, since I don't have full trust in management's prioritizing the common shareholder.
No. of Recommendations: 2
I may take some profits though, since I don't have full trust in management's prioritizing
the common shareholder.
That's a sensible point of view given management's flair for enriching themselves.
Although I keep reminding myself that the biggest mistake I've made in the past
40 years was finding reasons to sell flowers before they could blossom.
Ears <long Upstart>
