Do you want to invest in the automotive hot sales market? Buy Upstart shares
According to data released by the US Bureau of Labor Statistics, inflation rose at an incredible 7.5% year-over-year in January 2022, the largest increase in inflation in four decades. Used car prices jumped the most, up 41.5% from a year ago. Prices for new vehicles rose 12.2%. Clearly, consumer demand for automobiles is booming right now.
Looking for a way to invest in booming auto sales? Fintech sweetheart Assets received (NASDAQ: UPST) could be your ticket. Here’s what the company said it expects from its auto loan tech product for 2022.
The car loan division goes to the races
Upstart operates a cloud-based artificial intelligence (AI) credit scoring platform that banks and other lenders can use to extend credit to consumers. Upstart lends itself a bit. It had $252 million in loans on its balance sheet at the end of 2021. But given that the company generated $305 million in revenue in the fourth quarter alone, the loans are only a small part of what ‘she does. Management said 94% of fourth-quarter revenue came from fees collected from other lenders who use Upstart to assess a potential customer’s creditworthiness and issue a loan.
Upstart first cut its teeth in the massive lending industry through personal loans, which of course can be used to buy a car (among other things). But the company launched a more focused effort in auto loans in the summer of 2021, shortly after acquiring small auto loan technologist Prodigy in the spring. Since then, Upstart says the number of dealerships it works with has grown from 162 at the end of the first quarter of 2021 to 410 at the end of the full year.
In fact, Upstart believes it will help create $1.5 billion in loans in 2022. For reference, total loans were $11.8 billion last year, so automobiles will remain a relatively small segment. But there is plenty of room for expansion here. Data from the Federal Reserve Bank of New York indicates that total US auto loans outstanding were worth nearly $1.5 trillion at the end of 2021. This is a cyclical market. An increase in loan defaults, a slowdown in new car purchases, or even a drop in new and used car price inflation could dampen Upstart’s upside here. But the size of this credit market nevertheless highlights the potential of the technologist.
Expect a new product every year
Of course, the credit industry as a whole lends many trillion dollars each year, so Upstart is only just beginning to scratch the surface with personal and auto loans. Later this year, expect to see a small business lending product, and perhaps an entry into the mortgage industry in 2023. As CEO Dave Girouard said in the fourth quarter earnings update , “A home success for Upstart would equate to a new product in-market and ready to evolve in each of the next two or three years.”
For now, however, the surge in auto loan transactions should be a real driver for Upstart in 2022, which matches the 2019 personal loan roadmap for the company, according to Girouard. Given that Upstart reported annual revenue of $164 million in 2019 during the initial public offering process, and just reported full year 2021 revenue of $849 million, it suffice to say that the auto loan pipeline could be huge in the next few years if it performs similarly to the personal loan division.
Indications so far are that 2022 will be another good year for this fintech leader. Initial revenue projections (primarily fees collected from financial institutions for using the AI credit scoring platform) of $1.4 billion imply growth of around 65% beyond 2021. If you looking for a way to tap into America’s love affair with the automobile, Upstart is definitely worth a look. Remember, this stock will remain highly volatile given its strong growth but high valuation (stocks are currently trading at 79x last 12 months free cash flow), not to mention the highly cyclical nature of loans. to consumption.
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