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Global business strategy (Đại học Kinh tế Quốc dân)

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NATIONAL ECONOMICS UNIVERSITY

SCHOOL OF ADVANCED EDUCATIONAL PROGRAMS
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BUSINESS STRATEGY & POLICY

INDIVIDUAL ASSIGNMENT

UPSTART HOLDINGS CASE Name: Nguyễn Thị Tuyết Mai

ANALYSIS Student ID: 11213697
Dr Dean Van Pham Class: Advanced Finance 63D

Hanoi, 2023

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Table of Contents
I. INTRODUCTION....................................................................................................3
II. UPSTART HOLDING BUSINESS MODEL......................................................3
1. VALUE PROPOSITION.............................................................................................3
2. REVENUE STREAMS - HOW DOES UPSTART MAKE MONEY?.................................3
3. KEY ACTIVITIES.......................................................................................................4
III. BUSINESS ENVIRONMENT (PESTEL MODEL)..........................................4
1. POLITICAL................................................................................................................4
2. ECONOMIC FACTORS...............................................................................................4
3. SOCIAL FACTORS.....................................................................................................5
4. TECHNOLOGICAL FACTORS....................................................................................5
5. ENVIRONMENTAL FACTORS....................................................................................5
6. LEGAL FACTORS......................................................................................................5
IV. SWOT ANALYSIS................................................................................................5
1. STRENGTHS..............................................................................................................5
2. WEAKNESSES...........................................................................................................6
3. OPPORTUNITIES.......................................................................................................6
4. THREATS..................................................................................................................6
V. MAIN COMPETITORS..........................................................................................6
VI. FINANCIAL ANALYSIS.....................................................................................7
VII. CONCLUSION - SHOULD WE BUY, HOLD, OR SELL UPSTART
HOLDING’S STOCK?..................................................................................................10

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I. Introduction
Upstart Holdings, Inc., together with its subsidiaries, operates a cloud-based
artificial intelligence (AI) lending platform that partners with banks and credit unions to
provide consumer loans using non-traditional variables, such as education and
employment, to predict creditworthiness. Its platform aggregates consumer demand for
loans and connects it to its network of the company's AI-enabled bank and credit union
partners. The company was founded in 2012 and is headquartered in San Mateo,
California.
Upstart's mission is to "enable effortless credit based on true risk."
II. Upstart Holding Business Model
1. Value Proposition
1.1. Value Proposition to Consumers
- Higher approval rates and lower interest rates—An internal study demonstrated the
ability of our AI model to expand credit access to borrowers. Results from the internal
study as of December 3, 2021, showed that our AI model approves 43.4% more
borrowers and yields a 43.2% lower average APR for approved loans.
- Superior digital experience—Such automation improvements were due in large part
to improvements to our AI models and the application of such models to different aspects
of the loan process, including data verification and fraud detection.
1.2. Value Proposition to Lending Partners and Institutional Investors
Competitive digital lending experience— Upstart provides regional banks and credit
unions with a cost-effective way to compete with the technology budgets of their much
larger competitors. Expanded customer base— Upstart refers customers who apply for
loans through Upstart.com to our lending partners, helping them grow both loan volumes
and many customers. Delivering returns— Upstart focuses on credit performance
compared to the expectations set by them at the time of origination. Institutional investor
acceptance—Analyses by credit rating agencies help lenders gain confidence that
Upstart-powered loans are subject to significant and constant scrutiny from experts, the
results of which are often publicly available.
2. Revenue Streams - How does Upstart make money?
2.1. Revenue from Fees, Net
This a significant (95%) revenue-generating segment in which Upstart makes money
from two sub-segments: Platform and Referral Fees, Net and Servicing, and Other Fees,
Net.
- Platform and Referral Fees, Net: Upstart charges bank partners platform fees in
exchange for usage of its AI lending platform, which includes the collection of loan
application data, underwriting of credit risk, verification and fraud detection, and the
delivery of electronic loan offers and associated documentation. Upstart also charges
referral fees to its bank partners in exchange for the referral of borrowers from
Upstart.com.
- Loan Servicing and Other Fees: Net Servicing fees are calculated as a percentage of
outstanding principal and are charged monthly to any entities holding loans facilitated

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through Upstart’s platform to compensate Upstart for activities it performs throughout the
loan term.
2.2. Interest Income and Fair Value Adjustments
Net Interest income and fair value adjustments are comprised of interest income,
interest expense, and net changes in the fair value of financial instruments.
3. Key activities
3.1. Loan Origination Operations
While verification is primarily and increasingly handled by our software and AI
models, they also offer Upstart-designed tools to guide credit analysts and fraud
specialists in cases where their software is not yet able to sufficiently verify borrower
information. By providing a prescriptive and unique path for each applicant, our system
helps our operations team provide a streamlined experience for as many borrowers as
possible.
3.2. Servicing Operations
Upstart-powered loans are serviced via our homegrown platform. For borrowers
who miss payments, they focus on early intervention and attempt to reach them via
emails, calls, texts, and mail to help bring their accounts current or offer hardship options
following their servicing policies.
They hold collections licenses in the majority of states and conduct some first-party
collections activities. We also partner with third-party agencies for collections, especially
for accounts more than 30 days past due.
III. Business Environment (PESTEL Model)
1. Political
One of the recent political developments in the US that could impact Upstart is the
Biden administration's focus on consumer protection and fair lending practices. The
administration has proposed a number of reforms aimed at strengthening consumer
protection laws, including measures to curb predatory lending practices and promote
financial inclusion. However, these reforms could also lead to increased regulatory
scrutiny and compliance costs for Upstart and other financial services companies.
2. Economic factors
- Inflation: Inflation is an important economic factor that can have significant
implications on the performance of Upstart Holdings, Inc. (UPST). Inflation may lead to
a rise in interest rates, which could result in higher borrowing costs for the company. This
could, in turn, affect the company's profitability and growth prospects.
- Economic growth: Economic growth can have a positive impact on UPST's
business, as a strong economy can boost consumer confidence and increase disposable
income levels, leading to a rise in demand for the company's services. Furthermore,
economic growth can also drive up investor confidence, leading to increased funding
opportunities for UPST.
- Tax policies: Tax policies can also have a significant impact on UPST's operations.
Changes in tax policies, such as increases in corporate tax rates, could lead to higher
expenses for the company. On the other hand, tax breaks and incentives could reduce
UPST's tax burden, freeing up more resources for growth and expansion.

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- Interest rates: Interest rates can affect UPST's financial performance, as increased
rates generally lead to higher borrowing costs for the company. Conversely, lower
interest rates can enable UPST to borrow money more cheaply, potentially leading to
increased investment in the business.
- Exchange rates: UPST operates internationally, so changes in exchange rates could
impact its revenue and profitability. A decline in the value of foreign currencies relative
to the U.S. dollar could reduce the purchasing power of UPST's customers, leading to a
decline in revenues. Conversely, an increase in the value of foreign currencies could
result in increased revenues for the company.
3. Social factors
Upstart Holdings, Inc. (UPST) operates in the financial services industry that is
heavily influenced by social factors. The company offers loans to individuals and small
businesses, and therefore, its success depends on the social and cultural trends that drive
the borrowing behavior of customers.
Lifestyle changes: The COVID-19 pandemic has altered the way people live and
work, which could have a significant impact on the demand for loans. As more people
work from home, there could be an increased need for online loans that require minimal
paperwork. Public Attitudes: The public perception of loans and borrowing has a
significant impact on Upstart's business. With increasing concerns over debt and financial
security, the company needs to ensure that its loan products are ethical, transparent, and
suitable for customers' needs.
4. Technological factors
As a fast-growing fintech company, Upstart Holdings, Inc. (UPST) heavily relies on
technology to provide its services. Upstart's advanced technology makes its credit
underwriting more efficient and accurate. The company's proprietary algorithms analyze
a wide range of data points to make loan decisions quickly and objectively. Upstart's
technology reduces the time and costs associated with loan approval while minimizing
the risk of defaults. The company's mobile app and online platform improve customer
experience and engagement. Upstart's customer support team uses chatbots and other
tools to provide swift and personalized assistance to borrowers
5. Environmental Factors
Environmental factors refer to the external factors that might impact a company's
operations and decisions. These factors can include natural disasters, climate change, and
other environmental concerns that can affect a company's bottom line. The following are
some environmental factors that might affect Upstart Holdings, Inc.
6. Legal factors
Data privacy: Upstart Holdings, Inc. (UPST) collects and processes a significant
amount of customer data for its underwriting and loan origination operations. The
company must comply with data privacy regulations, such as the General Data Protection
Regulation (GDPR) in the European Union and the California Consumer Privacy Act
(CCPA) in the United States. Intellectual property protection: Upstart Holdings, Inc.
(UPST) has developed proprietary underwriting models and loan origination technology.
The company relies on intellectual property protection to prevent competitors from

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copying its innovations. As such, Upstart must navigate complex patent and trademark
laws in different jurisdictions.
IV. SWOT analysis
1. Strengths
AI-powered lending model: Upstart's AI model uses alternative data to assess
creditworthiness, allowing them to reach underserved borrowers and potentially offer
lower interest rates compared to traditional lenders.
Rapid growth: Upstart has been experiencing rapid revenue and loan origination
volume growth, demonstrating strong market traction and potential.
Focus on underserved borrowers: Upstart caters to borrowers with less-than-perfect
credit, a traditionally underserved and potentially large market with significant growth
potential.
Technology and innovation: Upstart's focus on technology and innovation helps
them improve risk assessment, streamline the loan process, and potentially reduce costs.
2. Weaknesses
Lack of profitability: Upstart is still not profitable, which raises concerns about its
long-term sustainability and valuation.
Market dependence: Upstart's revenue is heavily reliant on the personal loan market,
which could be impacted by economic downturns or rising interest rates.
Competition: The personal loan market is becoming increasingly crowded, with
established players and fintech startups competing for market share.
Regulation: The fintech industry is subject to evolving regulations, which could pose
challenges for Upstart's operations and growth.
3. Opportunities
Expanding product offerings: Upstart could expand its product offering beyond
personal loans to include other financial products or services, diversifying its revenue
streams.
Global expansion: Upstart could potentially enter new international markets, further
increasing its market reach and growth potential.
Partnerships: Upstart could partner with other financial institutions or businesses to
increase its reach and access new customer segments.
Improving profitability: Upstart needs to continue focusing on improving its
profitability through cost management, increasing loan origination volume, and
potentially exploring other revenue streams.
4. Threats
Rising interest rates: Rising interest rates could dampen loan demand and make it
more difficult for Upstart to attract borrowers and generate revenue.
Economic downturn: An economic downturn could lead to increased loan defaults,
impacting Upstart's profitability and financial stability.
Technological disruption: New technologies or competitors could disrupt Upstart's
business model and market share.
Regulatory changes: Unfavorable regulatory changes could restrict Upstart's
operations or increase its compliance costs

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V. Main competitors
-Personal Loans: LendingClub: With a long-standing presence, significant market
share, and diverse loan offerings, LendingClub poses a strong challenge. Prosper: Its
peer-to-peer model appeals to a different investor base but competes with Upstart for
similar borrowers.
- Small Business Loans: Bluevine: Streamlined online platform and focus on fast,
flexible loans directly compete with Upstart's model. OnDeck: Established player with
expertise in short-term business financing, attracting similar customers.
- Alternative Lending: Affirm: Dominates the buy-now-pay-later (BNPL) space,
potentially impacting Upstart's expansion into point-of-sale financing. Green Dot: Targets
similar underserved demographics with alternative lending products, creating overlap in
specific segments.
VI. Financial Analysis
1. Net Income

Figure 1. Net income of Upstart Holding from 2020-2023

Upstart's loan volumes have been moving in the wrong direction in recent quarters.
Last quarter, Upstart's lending partners originated $1.2 billion in loans, down 34% year
over year. This is likely due to the big increase in interest rates pushed through by the
Federal Reserve to slow inflation. As a consequence, demand for credit has slumped.
Upstart's revenue has followed suit, falling 14% year over year in the third quarter. Its
trailing 12-month revenue is off 52% from all-time highs. With significant fixed
overhead costs, this huge decline in revenue has led Upstart to flip from generating a
profit to losing money. During the last 12 months, it has posted a net loss of $253
million with a margin of negative 49%.
2. Revenue Growth

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Figure 2. Upstart’s Revenue from 2019-2023

Upstart Holdings had revenue of $520.16M in the twelve months ending September
30, 2023, down -48.00% year-over-year. Revenue in the quarter ending September 30,
2023 was $134.56M, a -14.42% decrease year-over-year. In the year 2022, Upstart
Holdings had an annual revenue of $842.44M, a decrease of -0.72%.
3. EPS

Figure 3. Upstart’s Earnings per Share from 2018-2023

From 2019 to 2021, Upstart's EPS painted a picture of unbridled ambition. Each
year saw significant improvements, with figures climbing from $-0.03 to $1.43.
However, 2022 brought a dramatic reversal. As economic headwinds and rising interest
rates chilled the credit market, Upstart's growth engine sputtered. Loan origination
volumes plummeted, leading to a precipitous drop in revenue. This, coupled with
Upstart's significant fixed costs, had a brutal impact on EPS, which nosedived to $-1.31
by the end of the year. In the year 2023, EPS, though still negative at $-0.05, showed a
slight improvement compared to the same period in 2022. This modest positive trend
could signal Upstart's efforts to adapt to the changed landscape, potentially through cost-
cutting measures or diversification strategies.
4. P/E ratio

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Figure 4. Upstart’s PE Ratio from Dec 2021 - Dec 2023

According to Upstart's latest financial reports and stock price, the company's current
price-to-earnings ratio (TTM) is -13.7652. At the end of 2022, the company had a P/E
ratio of -9.94. The negative P/E signifies that Upstart, despite impressive revenue growth,
has yet to turn a profit.
5. P/S Ratio

Figure 5. Upstart’s P/S Ratio from Dec 2021 - Dec 2023

Despite weak fundamentals, marked by continued losses and questionable loan
quality, its P/S ratio has skyrocketed by a staggering 512%, going from about 1.3 to more
than 7.2 right now, since the year began.
6. Gross profit margin

Figure 6. Upstart’s Gross margin and Net margin from 2021 - 2023

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A quick glance at Upstart's financials reveals a worrying trend: a significant decline in

profit margins over the past year. The gross margin has shrunk from 83% in 2022 to 69%
in 2023, and the net profit margin remains deeply negative at -48.64%.
VII. Conclusion - Should we buy, hold, or sell Upstart Holding’s Stock?
Based on my analysis and research, I think you SHOULD NOT INVEST in
Upstart Holding right now. Here are some reasons:
Demand for Upstart loans is low
Upstart is currently experiencing a significant decline in loan demand, which has
adversely impacted its overall performance. In the years 2021 and 2022, the company
successfully facilitated over 1 million loans, amounting to a substantial value of more
than $11 billion. However, the trend has shifted this year, with notably lackluster loan
demand. During the initial three quarters of the current year, Upstart's system approved a
total of 307,995 loans, translating to approximately $3.4 billion. This represents a stark
decrease of 68% and 65% compared to the corresponding period in the previous year,
underscoring the substantial reduction in demand for Upstart's lending services.
Interest rates increased sharply due to inflation
Upstart's lending activity has been affected by the economic backdrop. First, the
Federal Reserve has sharply increased current interest rates to fight inflation. This has
increased the rate Upstart must charge on loans, leading to lower demand from
borrowers.
These higher rates also limit funding for institutional investors, who previously
purchased many of Upstart's loans; These conditions persist amid concerns about the
macroeconomic picture. The company has done an excellent job building partnerships
with alternative asset investors and other banking institutions to buy its loans, but that
hasn't done much to compensate. compensate for weak demand from consumers.
Upstart's operating model increases the use of debt by consumers, which will
be a huge risk if consumers cannot repay their debts.
Upstart's loans continue to perform well, and the company has done a very good job
of identifying credit-worthy borrowers that FICO has delivered. However, its lending
models may face their biggest test yet. That's because consumers are saddled with debt —
a lot. The growing use of debt may indicate that consumers don't have much in savings
but still want to keep spending. Increasing consumer debt is not too much of a concern as
long as consumers have enough money to pay those bills. However, an increase in
delinquencies or delinquent accounts can indicate consumers are struggling. According to
the Fed, the delinquency rate for credit card loans is nearly 3%, the highest since 2012.
The delinquency rate for all consumer loans is 2.5%, up from the pandemic low was
1.5% and around pre-pandemic levels.
Financial figures show that Upstart is operating ineffectively
If financial figures show a decline in revenue and negative net margins, it indicates
operational challenges. Investors typically seek companies with sustainable revenue
growth and positive profit margins. The growth rate decreased and is forecast to continue
to decrease next year. The overvaluation of Upstart's stock, as indicated by the high price-

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to-sales ratio compared to the industry average, suggests that investor expectations may
be elevated. This could pose a risk if the company struggles to meet these expectations.

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