Did the rise of omicron lead you to spend more time at home than you would have otherwise? Even if all you have to work with at the moment is $200, your options are probably a lot better than you think.
Instead of buying one-third of a new PlayStation, you could buy a small piece of two exceptional businesses. These stocks won't do much to keep you entertained, but they could help you retire with significantly more wealth.
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Upstart Holdings
Upstart Holdings (UPST +0.88%) is using artificial intelligence to create a holistic assessment of credit risk and it's about time the industry had an update. It's been more than 30 years since banks began using scores from Fair Isaac (FICO +0.76%) to assess individual credit risk.
It's hard to tell exactly how many of the creditworthy borrowers who slip through Fair Isaac's net end up with a personal loan thanks to Upstart. It sure looks like Fair Isaac's top line started contracting around the same time Upstarts started rocketing higher.
UPST Revenue (Quarterly) data by YCharts
Upstart started partnering with lenders in 2012 and it will probably begin reporting more revenue than Fair Isaac before the end of 2022. Upstart began with the limited market for personal loans and recently expanded its offerings to include the relatively enormous market for auto loans.
Banks have been in a rush to hire Upstart to evaluate potential new borrowers' credit risk. In November 2020, the company was partnered with just 10 lenders. Since then, the number of banks and credit unions partnered with Upstart has soared to 35.
Rapid growth isn't the only sign Upstart is eating Fair Isaac's lunch. Four of Upstart's partners have already stopped requiring FICO scores from new borrowers.
In addition to upfront fees, Upstart receives a small percentage of the loans it helped originate in the form of an annual fee. This provides a reliable source of cash flow even if banks need to stop originating loans during an economic downturn.
There are no guarantees that another lender won't come along with a better product, but it doesn't seem likely. Upstart has already processed more than 20 million repayment events from over 400,000 loans. Every one of these events gives the company a little more insight it can use to stay miles ahead of any potential competitors for the foreseeable future.
Duolingo
You probably know dozens of people who have tried to learn a foreign language but how many retain any level of fluency? The language learning market is clearly ripe for artificial-intelligence-powered disruption and Duolingo (DUOL +5.49%) appears positioned to dominate the space for the foreseeable future.
Duolingo made its stock market debut last July but its bottom line is already beginning to turn positive. During the 12-months ended Sep. 30, 2021, the company reported $6 million in free cash flow.
Investors can look forward to a much larger profit in 2022. Foreign language learners around the globe are signing up in droves for the free version of Duolingo and an increasing percentage are subscribing to Duolingo plus, an ad-free version with premium features. The number of daily active users rose 16% year over year to 9.8 million during the third quarter. Over the same time frame, the number of paying subscribers soared 49% year over year to 2.2 million.
In addition to helping anyone with a smartphone learn a foreign language, the company's leveraging its popularity to sell an English proficiency test. Native English speakers rarely give it much thought, but students applying to English-speaking universities from abroad need to pass a language proficiency test. Duolingo's English proficiency test is already accepted by the 25 largest U.S. universities in terms of foreign enrollment.
The Duolingo application isn't going to end the need for in-person instruction. Used properly, though, it can make face-to-face time with real instructors a lot more productive. It's probably just a matter of time before academic institutions all over the globe deepen their relationship with the company. That makes it look like a screaming buy at the moment.
