So I have been doing some analysis on Upstart which are about to report Quarter 2 earnings after the bell today with a preliminary revenue announcement saying that they sold off much of their auto loans likely to the ABS market through whole sale certificates and other methods, but they incurred a loss from this.
I have been doing my financial due diligence along with business due diligence on upstart for the past week and here is what I have:
https://docs.google.com/spreadsheets/d/1iMR0QfnfHNaBIaGbb732eCfeyyU2SL7E8YfNZKkcm9M/edit
Its a spreadsheet of all financial information from all SEC filings if anybody wants to copy and make their own or add comments.
I also have on their my estimates for quarter 2. I think the unsecured personal loan origination market is strong, but every 100BP increase in APR for upstart borrowers leads to as 15% change (increase/decrease) in conversion rates making CAC increase and suppressing operating margins to likely mid-single digits during bad climates i would think, though because the average consumer account balance is still relatively high, we are not in that position and I think their operating will be in the low teens or high singles.
Anyway i kind of did this post as a DD swap along with getting people informed about UPST and their actual business model, financials and risks. I have some other analysis that I may post on market analysis, positioning, and outlook.
My main question is also to ask if anybody knows a good valuation method for UPST. I was thinking of using a modified DCF model where i subtract the weighted average credit loss on the average loan size assuming their is a correlation between average on-sheeted loans and revenue/growth.
It is harder to do a peer analysis because most aren’t like Upstart where they are a mix of software/consumer finance. Even their competitor lending club (LC) can’t be used because they are a bank in that they hold the loans they originate.
I of course can just use a simple FCF/net income multiple though i don’t think that captures the nuances of risk with UPST
Any help is great, ty
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