Upstart stocks (NASDAQ: UPST), the fintech company that operates an artificial intelligence powered credit platform, has already achieved ten digger returns (and more) in just nine months as a publicly traded company. In this Fool Live video clip, however recorded on August 12th, Fool.com contributor Matt Frankel, CFP, explains why Upstart has barely scratched the surface of its enormous opportunity.
Matt Frankel: Until then, Upstart’s business was primarily in the personal lending space. You can see right in front of you that this is a $ 84 billion market in terms of US issuance size. It’s also a very crowded room. Many companies have figured out how to get personal loans very well. Think of Marcus from Goldman Sachs, Think of Lending Club. There are many actors and all of the old banks now have personal lending deals that are almost online. I know city has one, I know [JPMorgan] chase has a, Wells Fargo has personal loans. It becomes a crowded room.
Nobody has figured out how to approach the auto loan arena from a subprime alternative lending perspective. Upstart has this huge machine learning AI platform that has the credit records of over a million people. Now they’re starting to apply it to that $ 635 billion auto loan room. If you look closely, they expanded their auto refinancing capacities from 33 to 47 states in the second quarter alone. Now 95% of the population can get a car loan through Upstart. The big problem with subprime car lending is that there isn’t a really good way to secure these borrowers. Remember, this is a secured loan that is backed by the value of a car. It is not uncommon for subprime borrowers to receive interest rates of 20% or more on a car loan.
Upstart allows you to refinance your loans and save big bucks. Upstart loans aren’t cheap, they’re not what top notch borrowers get, but 9% or 10% is way better than 20%. They are in a lot more dealerships now than they used to be, they acquired the Prodigy auto shopping platform that made over $ 1 billion in auto sales in the second quarter alone, they now own that platform. That brings them to new dealerships, not just for refinancing.
I mentioned they work with a little over 12 banks, I think the exact number is 15 right now, but don’t quote me, they seem to be adding it very often lately. Five of them have now signed up for their car loan platform. This is still a work in progress, but a huge market opportunity. That’s really why everyone is so excited about Upstart. They did a great job building this platform and showed that it works with the personal loan market and now they are going to roll it over to other types of loans, especially auto loans. That’s why everyone is so excited about this business. Not just the incredible growth and margins that are getting better faster than people thought, but this auto loan space is really a huge opportunity to take advantage of over the next few years.
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