Upstart Holdings, Inc. (NASDAQ: UPST) Q4 2021 Earnings Highlights
Dave Girouard CEO:
“…We have seen some epic progress at Upstart in the past few months, and I’m excited to share what we’ve been up to, the results we’ve been seeing and how we’re thinking about 2022 and beyond.
Let me state upfront that we’re in a multi-decade mission to put affordable credit within reach of every American. The price of credit is the price of opportunity and the price of mobility. And we want to ensure that opportunity and mobility are available to all Americans, particularly for those whom the financial system has failed in the past.
But like you, we’ve been eyes wide open, watching all that’s happening in the world in the last few months: the rise and fall of the Omicron variant, the clear signs of inflation and the Fed’s plan to counter it, and of course, the market rotation out of high-growth technology. But through all of it, our business continues to get stronger and my confidence in Upstart’s future has never been greater.
As the rare public technology company with triple-digit growth and profits, we’re confident that an economy and market in transition plays to our strength. I’d like to start by reflecting on 2021, which was a remarkable years for Upstart. We grew revenue from $233 million in 2020 to $849 million in 2021, while generating net income of $137 million. And with the fourth quarter surge, we’re now at more than $1 billion in revenue on an annualized basis. 2021 will be remembered as the year AI levying came to the forefront, kicking off the most impactful transformation of credit in decades.
To gain some perspective on what Upstart achieved in 2021, we looked for another company in the public markets with our combination of scale, growth and profits, but we were unable to find one. Our profits are neither marginal nor ephemeral. We generated more cash in 2021 than we burned in our entire eight-plus years as a private company. Profits matter for a reason. They allowed us to invest significantly in our future by more than doubling our headcount in product, engineering and machine learning in 2021. This unusual combination of growth and profits in a heavily competed industry is evidence of a distinct competitive advantage and clear operating leverage. It also suggests that you’re witnessing the creation of an industry-defining category, artificial intelligence lending and the emergence of the category leader, Upstart.
In addition to reaching $1 billion in annualized revenue and record profits, Q4 was special for other reasons. It was the first quarter with more than $4 billion in loan transactions on our platform, a record not just for Upstart, but potentially for the entire personal lending industry. Our bank and credit union partners originated almost 500,000 loans in the quarter. We also now have 42 banks and credit unions as well as more than 150 institutional investors funding loans on the Upstart platform, providing deep and diverse sources of liquidity to keep the engine humming and the AI models learning.
I’m also pleased to report that we now have seven lenders on the Upstart platform with no minimum FICO score required. But perhaps the most important achievement of the last quarter of 2021 was the incredible work done by our auto team. Through a relentless and determined cross-functional effort, this team put the last essential pieces in place necessary to begin scaling auto lending on the Upstart platform. I’ll come back to this topic in a moment.
I’d like to note that the Upstart team accomplished all of this during the second year of a global pandemic, while operating in an almost entirely remote and distributed fashion. We moved to a digital-first strategy while simultaneously implementing what we call a vertical team working structure. This new approach is unlocking Upstart’s ability to execute quickly and efficiently as a multi-product company. What’s really exciting is that we’re finding talent across the entire US. In fact, in Q4, more than two-thirds of our hires were made outside of our California and Ohio footprint. I cannot help, but express my amazement for all the Upstart team accomplished in 2021, particularly given the circumstances under, which they accomplished it. A sincere thank you to the entire Upstart team and also to the family and friends that support them.
Now, I would like to move on to 2022 and how we’re thinking about the year ahead. We find ourselves today in the strongest position Upstart has experienced to date and it’s our mission in 2022 to build on the many successes of the last year. At the beginning of each year, I’d like to clarify in my head and with the team, the handful of objectives Upstart needs to achieve to make the year an unqualified success. Right at the top of the list for 2022 was achieving meaningful scale with auto lending on our platform. We believe in our core that AI lending isn’t a one-category phenomenon, but will eventually transform virtually all flavors of credit. I’m happy to tell you that just 1.5 months into the new year, we’ve accomplished this goal. In fact, our auto refi funnel performance is now comparable to where our personal loan funnel was in 2019 on a channel-adjusted basis.
Based on this progress, we now expect $1.5 billion in auto loan transactions on our platform in 2022. Just as importantly, we now have the confidence to invest the resources necessary to unleash the model and technology improvements in auto lending that made Upstart the category leader in personal lending.
As I referenced earlier, this great leap forward was the product of an intense push by our auto team toward the end of Q4. There are many pieces and parts we needed to get right to enable a minimally efficient funnel and the team worked night and day right up through the holidays to make it happen. It’s worth stating that scaling the auto business from here is no simple task, more funnel and model improvements will be necessary, and distribution channels in auto refi aren’t nearly as well established as they are in personal lending.
But even though channel development will require significant time and effort, the good news is that we’re confident we’re in a class by ourselves. Upstart has a unique and proprietary auto refinance product with far less competition than we’ve had in personal lending. In truth, if you don’t have a certain level of funnel efficiency in auto refi, you really don’t have a product. Today, we’re confident that automotive lending is a category we can grow into for years to come.
We also continued to make rapid progress in the new product categories that I mentioned in our last earnings call: small dollar lending, small business lending and mortgage. In each case, we’ve established a core team and are making real progress toward entering the market.
In the case of small dollar and small business lending, we expect to have these products in market during 2022. In the case of mortgage lending, we hope to be in market in 2023. In each case, we anticipate a year or so of development, a year of feeding and testing and then a year to begin scaling. A home run success for Upstart would amount to a new product in-market and ready to scale in each of the next two or three years. Of course, it’s very hard to time innovation, much less market adoption, but this is the pace we’re aiming for. Overall, the categories we’re in today or expect to enter represent an addressable market of more than $6 trillion in annual originations….”