- Upstart’s revenue grew 264% in 2021.
- The company targets a $6 trillion credit market.
- The stock needs to climb 55% annually through 2030 to catch up with Meta Platforms.
When you invest in growth companies, it’s likely that just a few stocks will drive your returns over the long term. These are companies like Netflix, Amazon and Apple. These are stocks that have appreciated by a multiple over the course of a decade or more, more than offsetting any losers in your portfolio. Given Upstart Holdings’ recent growth, it looks like the disruptive lending platform has a chance to become one of those long-term assets for growth investors. If that’s the case, I thought it would be interesting to compare the company to one of the mega-cap tech giants and see if it has the potential to match their size 10 years from now.
Upstart is a company that uses artificial intelligence (AI) to assess consumer creditworthiness and seeks to break the financial industry’s reliance on the traditional FICO score, which cannot always accurately assess a borrower’s credit risk. Will it be worth more than tech giant Meta Platforms, formerly Facebook, by 2030? let’s find out
In 2021 the growth was incredibly strong
Upstart had a phenomenal 2021 as adoption continued with its banking partners and the company expanded heavily into automotive finance. Total revenue in 2021 was $849 million, up 264% from 2020. Lending volume reached $11.8 billion, up 338% from last year. Lending volume is an important metric because Upstart charges a fee for each loan. The more loans its banking partners extend (Upstart does not usually extend loans itself), the more fee income the company receives.
Although the company is growing rapidly, Upstart is highly profitable. In 2021, Upstart generated $135 million in net income, which translates to a 16% net margin. As the company matures and stops investing as heavily in its growth over the next five to 10 years, investors should expect net profit margins to increase.
Along with the quarterly report for 2021, Upstart’s management also provided guidance for this year. Revenue is expected to be $1.4 billion in 2022, representing 65% year-over-year growth. While that’s not as strong as 2021’s 264% growth, if Upstart can post strong double-digit growth each year, this company will be a lot bigger in 10 years.
The market opportunity is great, but there’s a catch
Upstart management believes the company can handle $6 trillion in annual loan volume. Mortgage lending accounts for the bulk of this market, with an estimated annual lending volume of US$4.6 trillion. Auto and personal loans, the two categories in which Upstart currently operates, have a combined annual lending volume of $823 billion.
Upstart processed just $11.8 billion in loans in 2021. So there’s still plenty of room for growth in personal and auto loans alone. However, if the company wants to become the dominant lending platform around the world, it must eventually conquer the mortgage market. While $6 trillion seems like a massive market (and it is), Upstart sees only a small portion of each loan it originates as revenue. For example, with $11.8 billion in lending volume in 2021, Upstart earned $801 million in fee income, or 6.8% of lending volume. Investors should keep that in mind as they look at the $6 trillion credit market that Upstart is targeting.
Getting bigger than Meta Platforms seems unlikely
At the time of writing, Upstart has a market cap of approximately $11 billion. Meta Platforms has a market cap of around $570 billion even after the massive sell-off over the past few months. If Upstart wants to reach a market cap of $570 billion by 2030, its share price needs to grow 55% annually from now until then. That’s a lot more than the stock market’s historic annual return of 10%.
Let’s look at it from a different perspective by comparing Meta’s net profit to Upstart’s. In 2021, Meta generated net income of $39.4 billion. As mentioned above, Upstart generated $135 million. To match Meta’s net income from 2021 through the end of 2030, Upstart would need to grow its earnings at 88% per year for nine years. While that’s not impossible, it’s unlikely that Upstart — or any company for that matter — can grow so quickly for so long. In all likelihood, Upstart’s stock won’t be worth more than the social media giant until 2030, unless Meta’s market value drops significantly by then.
Upstart might not be a future tech giant, but that doesn’t mean it’s a bad investment. If the company continues to increase its lending volume and eventually gets into the mortgage business, Upstart’s share price will likely be much higher in 2030 than it is today. That makes the stock an attractive opportunity for growth investors with a long-term time horizon.
The item Will Upstart Holdings be worth more than Meta Platforms (Facebook) by 2030? appeared first on The Motley Fool Deutschland.
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This article represents the author’s opinion, which may differ from the Motley Fool’s “official” position as a premium advisory service. Challenging an investment thesis—even one of your own—helps all of us think critically about investing and make decisions that help us be smarter, happier, and wealthier.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors.
This article was written by Brett Schafer in English and on 2/26/2022 at Fool.com released. It has been translated so that our German readers can join the discussion.
Brett Schafer does not own any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, Meta Platforms, Inc., Netflix, and Upstart Holdings, Inc. The Motley Fool recommends the following options: The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 Calls on Apple.
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