Will Upstart Holdings be worth more than meta-platforms (Facebook) by 2030?
If you’re an investor in growth companies, it’s likely that just a few stocks will propel your long-term returns. These are companies like netflix, Amazonand Apple, stocks that appreciate in value multiple times over a decade or more, more than offsetting the losers in your portfolio. Given the recent growth of Assets received ( UPST 3.29% ), it looks like the disruptive lending platform has a chance to become one of those long-term compounds for growth investors. If so, I thought it would be interesting to compare the company to one of the mega-cap tech giants and see if it had the potential to match their size a decade from now.
Upstart is a company that uses artificial intelligence (AI) to assess consumer creditworthiness, seeking to reverse the financial industry’s reliance on the traditional FICO score – a metric that doesn’t always give an accurate reading of credit risk. borrower credit. Will it be worth more than the tech giant Metaplatforms (FB 1.39% ) , formerly Facebook, by 2030? Let’s find out.
2021 growth has been incredibly strong
Upstart has had a phenomenal 2021 as it has been embraced by its banking partners and has grown strongly in auto lending. Total revenue in 2021 was $849 million, up 264% from 2020. Lending volume reached $11.8 billion, up 338% year-over-year. Loan volume is an important metric to track because Upstart takes a fee from each loan, so the higher the volume of loans issued by its banking partners (Upstart does not generally do loans itself), the more revenue it will earn. of charges.
Although growing rapidly, Upstart is very profitable. In 2021, Upstart had net income of $135 million, which gave the company a net margin of 16%. As the company matures over the next five to ten years and stops investing so much for growth, investors should expect its net profit margin to increase.
Along with its 2021 earnings report, Upstart management released guidance for this year. In 2022, it expects revenue to reach $1.4 billion, which would represent 65% year-over-year growth. While not as strong as the 264% growth in 2021, if Upstart can consistently see strong double-digit growth every year, that business will be much bigger a decade from now.
The market opportunity is great, but there is a catch
Upstart management estimates there is a $6 trillion annual loan origination opportunity for the company. The majority of this total addressable market – or TAM – is in mortgages, with an estimated annual lending volume of $4.6 trillion. Auto and personal loans, the two categories in which Upstart currently operates, combined annual loan volumes of $823 billion.
Upstart only handled $11.8 billion in loans in 2021, so there’s still plenty of room to grow in personal and auto loans alone. However, if the company wants to become the dominant lending platform in the world, at some point it will have to crack the mortgage market. It’s also worth noting that while $6 trillion sounds like a gigantic market (and it is), Upstart only considers a small portion of each loan it generates as income. For example, of the $11.8 billion in loan volume in 2021, Upstart generated $801 million in fee income, or 6.8% of loan volume. Investors should keep this in mind when looking at the $6 trillion loan market that Upstart seeks.
Going bigger than meta-platforms seems unlikely
As of this writing, Upstart has a market capitalization of around $11 billion. Meta Platforms, even after its huge sell off in the past few months, has a market capitalization of around $570 billion. If Upstart is to reach a market capitalization of $570 billion by 2030, its share price will need to accumulate at 55% per year by then. That’s far more than the stock market’s historic annual return of 10%.
Let’s look at it from a different angle, comparing Meta’s net income to Upstart’s. In 2021, Meta generated $39.4 billion in net income. Upstart, as mentioned above, generated $135 million. To match Meta’s net income in 2021 through the end of 2030, Upstart will need to grow its net income by 88% per year for nine consecutive years. While it’s certainly not impossible, it’s unlikely that Upstart – or any company, really – could grow this quickly for this long. In all likelihood, unless Meta’s market value drops significantly by 2030, Upstart stock won’t be worth more than the social media giant by then.
Upstart may not be a future tech giant, but that doesn’t mean it’s going to be a bad investment. If the company continues to increase its lending volume and eventually shifts to mortgages, Upstart’s stock will likely be much higher in 2030 than it is today. This makes the stock an attractive opportunity for growth investors with a long time horizon.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.