From our latest article on Upstart Holdings, Inc. (NASDAQ: UPST), the company had fallen further by -25.55%, from $ 139.38 on February 18, 2022 to $ 103.77 on March 25, 2022. We believe that it could be partially attributed to the Fed raising it reference rates for the first time since 2018, due to inflation. In addition, the ongoing war in Ukraine has forced many investors to sell bonds, pushing Bond yields beyond the highs of 10 years. Successively, he led many reputable companies, such as Tesla (TSLA), We confirm (AFRM), and World Omni Financial, an auto finance company, to postpone their scheduled bond sales indefinitely.
However, in our opinion, the volatile market situation has only created an even more attractive entry point for potential UPST investors, given its huge potential in the AI lending industry and the Total Addressable Market (TAM) in Small Business and Mortgage Financing. .
In the meantime, we encourage you to read our previous article on UPST, which will help you better understand its position and market opportunities in the field of artificial intelligence financing.
- Upstart: Dealing with the Legacy Lending Industry By The Horns
Automatic lending will lead to the recovery of UPST
UPST ‘s dreams for auto financing were announced in 2020 and further strengthened with the acquisition of Prodigy Software in 2021, a leader in e – commerce platforms for car dealerships. It was a natural development for UPST, given the way in which it had penetrated the personal lending sector and aimed to increase annual TAM loans to $ 6T, including auto parts, mortgages and small businesses.
Since Prodigy also provided a direct connection to car dealerships across the country, UPST was able to generate direct revenue from the multi-channel automated shopping experience for online and in-store car purchases. Combined with UPST’s artificial intelligence lending software and Prodigy auto-credit for final market transactions, we expect strong adoption ahead, as 61% of Americans prefer to buy from car dealerships.
As of FQ4’21, UPST’s existing car loans are $ 50.1 million, accounting for 19.8% of its total loans. Seeing that UPST led to a $ 1.5 billion loan for the new auto division in 2022, it is clear that the company was expecting an exponential increase in the value of the loan and, consequently, revenue going forward. It is also important to note that UPST achieved the value of these loans prior to its release Upstart Auto Retail mobile platform on March 9, 2022. Given that two-thirds of UPST traffic comes from mobile devices, we expect that the enhanced user experience will potentially lead to the adoption of lending based on artificial intelligence. Michia Rohrssen, GM of Upstart Auto Retail, said:
Buying a new car is not always a linear process, so we designed the new online platform not only to adapt to mobile phone usage, but also to give the dealer more customization options for every type of buyer and buying rate. (UPST)
In addition, UPST recently announced on March 10, 2022 that Volkswagen (OTCPK: VWAGY) has also chosen to adopt Upstart Auto Retail software, based on its existing partnership with other automakers such as Toyota, Lexus, Subaru, Mitsubishi and Kia. It is important to note that Volkswagen is the largest carmaker in Europe with a decent market share 2.4% in the USA. With Volkswagen reporting $ 51.5 billion in revenue in 2021 for its North American division, we expect many of Volkswagen’s future transactions to also include UPST’s artificial lending services.
Assuming an international expansion in the future, UPST could also look at a huge global car market, with Volkswagen declaring $ 253.2 billion in revenue from passenger cars, light commercial vehicles and the FY2021. Michia Rohrssen, GM of Upstart Auto Retail, said:
Online shopping and shopping behaviors have redefined the consumer experience so much that it is now expected in other industries, including the car. There is a huge appetite on both sides – consumers want to browse, shop and shop online at their own pace, and manufacturers and marketers are eager to embrace and expand their digital retail solutions. Volkswagen is firmly at the forefront of innovation and we are excited to power its expansion and initiatives in digital retail now and in the future. (UPST)
In addition, UPST reported that several U.S. franchise dealers selling other car brands, such as Ford, Honda, and BMW, have also partnered with UPST on the auto financing program. Nearly $ 4 billion worth of vehicles are also being traded through UPST’s artificial intelligence lending platform in 2021. As a result, it is obvious that UPST’s artificial intelligence lending software is helping many Americans get their dream cars through dreamers.
In addition, UPST announced the cooperation with Subaru on March 21, 2022, for the new category “Construction and Price” of the latter. Given the current lack of semiconductors around global supply chain issues, the new program will allow Subaru consumers to build and order their vehicles a year earlier, as well as use UPST’s digital intelligence platform.
As a result, there is huge potential for UPST’s artificial intelligence lending division, given its close relationship with national car dealerships and multiple partnerships with leading automakers in the market. Since these two collaborations were announced in March, we expect to see the positive effects only from FQ2’22 onwards. However, given Decline in car sales on an annual basis from the highs of COVID-19, we can expect a certain restraint of UPST automotive revenues in FQ1’22. In addition, since both Russia and Ukraine are the main suppliers of basic materials for the construction of semiconductor chips, we expect that the volume of car sales will be affected somewhat, at least for the coming months.
Thus, the UPST stock is a marketSale or Retention?
As of our last article, Consensus revised their estimates upwards by 2.1%, with UPST expected to report $ 1.42 billion in revenue at FY2022. Represents a potential increase of 77.2% on an annual basis. In addition, UPST is expected to report revenue growth of CAGR 50.49% over the next two years. Despite the apparent slowdown in revenue growth compared to the historic CAGR of 98.92% over the last four years, the company is expected to show a significant increase in operating margins from 7.89% in 2022 to 16.3% in 2024, translated immediately in constant net increases the income to proceed.
UPST is currently trading at 6.03x EV / NTM Revenue, lower than the 3Y average of 15.53x. UPST’s huge TAM in cars and the future, small businesses and mortgage financing are also making its stocks attractive, given its current devaluation. As a result, we encourage interested investors to take the opportunity to load more in this downturn.
Hence, we will continue to value the UPST stock as a Purchase.