We live in an age where technology is constantly improving the world around us. Some of them are obvious, like the smartphone you might be reading this article on, but some technologies work in the background to make life more convenient without you even knowing it.
Assets received ( UPST 3.75% ) is an artificial intelligence (AI) powerhouse specializing in the latter. It has developed an artificial intelligence algorithm that is put into play when users apply for a loan from a bank, and in doing so, it levels the playing field for applicants. It instantly analyzes over 1,600 data points relating to the situation of candidates to provide a more in-depth and comprehensive analysis, as opposed to the traditional method I AM credit scoring system that takes into account a much more limited set of data points.
Upstart is rapidly expanding into new credit markets that overshadow the potential of its humble beginnings, and that could lead to explosive growth in its share price.
Where is Upstart’s business currently?
Upstart is not a lender itself. It collects commissions from its banking partners when its algorithm grants them a loan, so the company bears no credit risk. Therefore, Upstart is not constrained by the same regulations and capital requirements as most financial institutions. This should allow it to grow much faster.
The company initially began offering unsecured personal loans for purposes such as vacations, medical procedures, and home renovations. But it has expanded into the much larger auto loan market, and its total addressable market (TAM) opportunity has grown significantly as a result.
|loan segment||Annual total addressable market|
|Personal Unsecured (Consumer)||$96 billion|
|Automotive (general public)||$727 billion|
Upstart bought software company Prodigy in 2021, which developed a sales platform for car dealerships. Upstart saw this as a clear opportunity to meet car buyers where they were (rather than at a bank). He spent several months integrating his loan origination technology with Prodigy’s sales software, and Upstart Auto Retail was born. Now auto dealerships can offer financing to customers using the same platform they use to make the sale, and the growth is booming.
In 2021, Upstart made $849 million in revenue, even wiping out its own forecast of $500 million at the start of the year. This is a spectacular acceleration in growth (+264%) compared to 2020.
What’s intriguing is that the auto loan segment hasn’t even grown yet. In 2022, Upstart expects to generate just $1.5 billion in auto loans, which would add less than 10% to the company’s $11.7 billion in total loans from 2021. That means it remains still a long way to grow.
But this may just be the start of an explosive opportunity.
Where Upstart Could Go
The loan market is large and diverse. You can borrow money for a wide range of things, both individually and as a business. With unsecured loans and car loans, Upstart has only scratched the surface of its potential.
The U.S. unsecured and auto loan markets total $823 billion in issuance per year, but adding small business loans and mortgages, this TAM opportunity could reach $6. trillion.
Upstart highlighted this in its full year 2021 results presentation, which offers a clue to the company’s next stage of expansion. Mortgage originations would probably be the ultimate long-term goal due to the sheer size of the market, but the small business segment is the most logical next step.
Whichever direction Upstart decides to venture in, one thing seems certain: explosive growth potential.
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