To The Moon

$Upstart Holdings, Inc.(UPST)$ jumped more than 25% after announcing Q4 results on Feb 11th after-hours.

Earnings and Market Feedback

1. Q4 results were a "big beat": Rev 218M > 182M consensus, Surprise reached 20%, and EPS 0.26 > -0.03, not only an early turnaround, but also well ahead of market expectations;

2. Raised guidance for CY25: est CY25 Rev 1B > 823M consensus, 25Q1 Rev 200M > 185M consensus; est CY25 EBITDA margin 18% > 13% consensus, Q1 EBITDA 27M >10.7consensus.

3. The +25% start directly after the bell saw the stock pull up from around 70 to a former high of around 85, although the former high was tested twice and is now also an already important resistance/breakout level;

Investment Highlights

1. New model Payment Transition Model (PTM) embedded with AI to enhance loan approvals more accurately;

   1. Customization, enabling banks to tailor the approval process to their credit policies and risk appetite

   2. Automation, with 71% of loans approved immediately without human intervention

   3. Accuracy: 27% more loans approved than traditional models and average 16% lower APRs

2. High economic activity and very low default rates.

   1. Loan originations +33% QoQ, +68% YoY, loan amounts +35% QoQ, +56% YoY

   2. All product categories contributed, with auto loans and home equity lines of credit (HELOC) originations +60% QoQ with over 1,000 originations and no defaults;

   3. Micro Relief Loans grew 115% and accounted for over 15% of total loan originations, but only 3% of initial loan amounts, showing the company's effectiveness in expanding the borrower population with room for more;

   4. Loan conversion rate was 19.3%, up from 11.6% in 23Q4

3. Early "turnaround" due to faster revenue growth.

   1. Profit contribution of $122 million, up 28% year-over-year, was 61%, driven by improved modeling and borrower acquisition efficiencies; the Company believes that disciplined rate management, efficient borrower acquisition, and continued cost reductions will be important contributors to margins going forward;

   2. Supply-demand scenario still has room for improvement: average loan size increased to $8,580 from $8,400 in the previous quarter, and ended the year with 806M loans on the balance sheet, -28% YoY, while Cash & Cash Equivalent reached $788M, more than double last year's $368M, mainly due to the issuance of convertible debentures

   3. As a result, "short-term lending" can continue to grow, with the CFO stating that the short-term focus is on large deals to support borrower growth, with a medium-term target of a 50% capital commitment level.

   4. Net interest income turned positive at $20m, helped by improved credit performance and lower default levels

Overall, UPST's performance is very healthy and has benefited from macroeconomic strength.The current PS of 10.38x also exceeds the past year's average of 5.81x.