Upstart (UPST 7.52%) has seen major acceleration in its growth over the last year and it could see even greater growth if it finds success in auto loans. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on March 30, Motley Fool contributors Toby Bordelon and Rachel Warren discuss the recent earnings for the company and where the growth opportunities lie ahead for the AI lending platform.
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Toby Bordelon: Quick refresher here in what they do. They're an AI lending platform. They connect consumers to partner banks. They don't actually lend themselves, what they do is provide the AI-based algorithm and technology to analyze the loans, help the banks make better lending decisions. You can see what's going on with that here. They think this model is good for both consumers and for banks. Because consumers get higher approval rates, a lot of these loans are instantly approved. There's no waiting. You make your application and you're good to go. It's also more inclusive. It allows for access to credit for a lot of demographics, something that is a big concern right now. For banks, this is a highly automated experience. It makes it more efficient for them. It saves them money in the lending process. Let's look at what they did. Here are some key results from the last fiscal year that they just reported. I'm looking at these numbers and, wow, look at those growth rates. Just to look at that revenue versus the year before. We're talking revenue up 264%, income from operations up almost 1100%, which is just astonishing if you think about it. The difference between that revenue and the increase in income from operations to show you how good they are at keeping their costs down as they grow. A lot to look at what's going on or what's been happening over this past year. Here are some key operating metrics. You see that general trending up in time in terms of transaction volume, the number of loans on the left there, that transaction volume in dollars on the right there. Very nice. It's accelerating. You see some acceleration in their growth. Over time, you can see the light green is the revenue. The yellow is their net income, and you just see that growing over time. Really good to see there. They see more opportunity as they roll out auto loans ahead. They're looking at that $1.5 billion or so over for fiscal 2022. This is a new thing for them, a new growth opportunity. I love this. Some concerns over their algorithm. We've seen in the past year people with some skepticism; does this really work? I think their revenue growth, we've seen over the years, suggest that there's something here. If they can make it work with auto loans, there's a lot to like in the years to come.
Rachel Warren: It's interesting. I think there's been a lot of hype around Upstart for sure, and it certainly seems to be gaining a lot of ground in the market it's in but the company faces its fair share of competition. SoFi (SOFI 4.41%) is one 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 ought to be aware of?
Bordelon: I wouldn't say that they're the clear winner yet. I think it's too early. I think you're going to see AI-based decision-making more and more in this space because of the efficiency and the 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 do have a relatively small portion of the overall addressable market because it is so new. I think there's room for more competition to come in and for them still to win, for them to still do good. Once the market matures more over the next 5-15 years, it 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 all about just bringing technology to the marketplace, increasing adoption. The more companies you have getting banks on board saying, "Hey, this is the way to go," I think Upstart could benefit from that.