February 15, 2022
Editor’s note: Upstart Co-Founder and CEO Dave Girouard shared thoughts on last year, as well as look ahead, during the company’s quarterly earnings call. To read more about Upstart’s Q4’21 and full-year 2021 earnings, visit here.
Good afternoon, everyone. Thank you for joining us on our earnings call, covering our fourth quarter and full-year 2021 results. I’m Dave Girouard, co-founder and CEO of Upstart.
We’re a month and a half into the new year and I’m grateful—finally—to have the opportunity to reconnect with the investor community. Some quiet periods just feel longer than others. We’ve 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 up front that we’re on 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 those for 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 plans 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 strengths.
Reflections on 2021
I’d like to start by reflecting on 2021, which was a remarkable year for Upstart. We grew revenue from $233M in 2020 to $849M in 2021, while generating net income of $137M. And with a fourth quarter surge, we’re now at more than a billion dollars in revenue on an annualized basis. 2021 will be remembered as the year AI lending came to the forefront, kicking off the most impactful transformation of credit in decades.
To gain some perspective on what the Upstart team achieved in 2021, we looked for another company in the public markets with our combination of scale, growth, and profits but 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 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 a billion dollars 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 requirement.
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 who support them.
The year ahead
Now I’d 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 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 a month and a half 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 continue 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 seeding 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.
Closing thoughts
Upstart is now about the size that Google was at the time I joined that company in early 2004. So I’ve seen this movie before—and hope to use what I learned there to build Upstart into the most impactful FinTech in the world. I have some specific personal goals for Upstart in 2022. First, to transition into a multi-product, distributed company that can operate in parallel instead of in serial. Second, to break new ground in terms of quality of execution at the “billion dollar plus” scale, with leaders such as Google, Amazon, and Apple as my northstar. And third, to move aggressively to unlock Upstart’s addressable market while simultaneously upgrading our ability to pursue it. These challenges will keep our leadership team busy in 2022 and well beyond.
Upstart is a unique company both in terms of our technology and our business model. We don’t exactly look like anybody else, and for this reason, we’re often misunderstood. So in closing I’d like to share a few thoughts about Upstart that have struck me in the last few months as useful ways to understand who we are and what we’re building.
First, Upstart is both a consumer internet brand as well as a cloud software provider, delivering a deeply proprietary and technical product to our bank and credit union partners. This combination is entirely unique, and is central to our competitive position today and in the future. Were it not for the AI models at the core of Upstart, we would have little unique value to offer our bank partners. And were it not for our consumer presence and scale, we would not control our destiny, and our AI models would not be learning as quickly as they are. This combination means we can dramatically strengthen the competitive position of banks that partner with us, while simultaneously helping consumers find the very best credit product available to them.
Second, choosing not to become a bank was the right decision for Upstart, and it’s central to our worldview. A very successful bank will serve a particular slice of America incredibly well, with a well-constructed portfolio of products, a trusted brand, durable relationships, and a predictable business model. We believe we can help forward-thinking banks succeed in their mission with better technology.
We think of ourselves as a consumer internet brand focused on personal finance. Unlike a bank, an internet brand can seek to serve all Americans and eventually everyone in the world. We hope to do this over time with an incredible diversity of offerings from hundreds if not thousands of partners, each of which will benefit from leveraging Upstart AI. So in short, our goal is to become a technology partner to all the world’s great financial institutions, and through those partnerships, to enable the broadest array of financial products at the best price and with the best experience, to everybody.
Finally, lending is a cyclical industry and always will be. Though Upstart is not a lender, we are a technology provider to this industry, so we expect our growth and transaction volumes to vary considerably from quarter to quarter. But at the same time, we represent a secular change that we believe is both inevitable and durable. Our core thesis is that, over a period of years, AI lending will rapidly gain market share over legacy approaches to credit, and Upstart is in the pole position to benefit from that. In fact, economic volatility, such as we’ve seen in the last two years, only serves to demonstrate the value of a modern AI-enabled approach to credit origination.
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Forward-Looking Statements
This blog post contains forward-looking statements, including but not limited to, statements regarding our outlook for the first quarter and full year of 2022 and regarding auto loan originations providing growth opportunities. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “target”, “aim”, “believe”, “may”, “will”, “should”, “becoming”, “could”, “can have”, “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements give our current expectations and projections relating to our financial condition; plans; objectives; growth opportunities; assumptions; risks; future performance; business; our share repurchase program and any other investments; and results of operations, including revenue, contribution margin, net income (loss), non-GAAP adjusted net income, adjusted EBITDA, adjusted EBITDA margin, basic weighted-average share count and diluted weighted-average share count. Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The forward-looking statements included in this blog post and on the related teleconference call relate only to events as of the date hereof. Upstart undertakes no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. More information about factors that could affect our results of operations and risks and uncertainties are provided in our public filings with the Securities and Exchange Commission, copies of which may be obtained by visiting our investor relations website at www.upstart.com or the SEC’s website at www.sec.gov. These risks and uncertainties include, but are not limited to, our ability to sustain our growth rates; the effectiveness of our credit decisioning models and risk management efforts; overall economic conditions; disruptions in the credit markets; our ability to retain existing, and attract new, bank partners and lenders; and our ability to operate successfully in a highly-regulated industry.