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Breaking Down Upstart's Blowout Second-Quarter Earnings

By Matthew Frankel, CFP® – Aug 25, 2021 at 6:38AM

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The fintech beat expectations, but that doesn't even begin to tell the story.

Lending technology company Upstart Holdings (UPST -1.94%) reported second-quarter results that shattered expectations in virtually every way possible. In this Fool Live video clip, recorded on Aug. 12, contributor Matt Frankel, CFP, breaks down the numbers and explains why this is so much more than simply an earnings beat.

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Matt Frankel: Upstart's results were absolutely phenomenal. I could just tell you that they impressed people on every possible metric and end it there. It was that good. Just to run through some of the numbers and take some of these growth figures with a grain of salt. I say that because remember what was going on at the second quarter of last year, especially in terms of bank lending. A lot of banks, because of the uncertainty around the pandemic, were really pumping the brakes on lending, things like that. Upstart relies on bank partners to make its loans. It doesn't loan money directly, it partners with about a little over a dozen banks that make loans on its behalf.

When I tell you that its revenue was up a 1,018% year over year, it didn't actually 10X its revenue over the past year, that's a COVID effect. But having said that, Upstart handily beat its expectations. Its analysts were expecting about $158 million in revenue. Upstart produced $194, that's a pretty impressive beat. Upstart is a profitable fintech. They earned $0.62 a share, that's compared to $0.25 a share that analysts were looking for.

A couple of things I wanted to highlight, looking past those headline numbers. Loan originations, first of all, Upstart's loan origination volume was $2.8 billion originated on its platform. That is big growth compared to where it was just a year ago. I said I'd mentioned that the second quarter of last year is not a very good comparison because of the pandemic. The second quarter in 2019, less than half a billion dollars were originated on the platform in normal times. Now, that's up to $2.8 billion. Big growth we're seeing in Upstart's earnings. It's growing faster than people thought it would.

I have to admit, I don't know if either of you are fans of Upstart, but this was a business I didn't quite get at first just because there are a lot of companies that have tried to redo the way issued credit. Upstart is not the first company that has said, "Well, the traditional way of approving loans is not good." It doesn't serve the entire market, specifically the subprime borrowers. Upstart's really done a great job of reinventing that market, with its artificial intelligence platform. The big reason you're seeing the stock go up much, Upstart has skyrocketed since its earnings report's out, it's up about 40% since the earnings report came out, and it was already triple its IPO price.

Tremendous performer, the biggest reason is it increased its guidance by a lot. I know Brian is a tech investor, he knows that guidance is everything. When it comes to some of these high-growth tech companies, nobody cares what you did this past quarter if your guidance is terrible. That's the plain English way to say that. At the end of the first quarter, remember, that was just three months ago, at the end of the first quarter, Upstart was projecting $600 million in revenue for the year. It's now projecting $750 million in revenue a year. It increased its guidance for the year by 25%. Margins are looking so much better than they thought. They thought their adjusted EBITDA margin for the year was going to be 10%, now, they're saying it's going to be 17%. That's a change in just three months. It's just looking so much better than they thought it was.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Upstart Holdings, Inc. The Motley Fool has a disclosure policy.

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