upstart posted earnings that impressed Wall Street as well as
social media. Now joining me today is Ceo dave
gerard. Nowadays stocks can trend like a viral tiktok
as a ceo, you might want to take that
with a grain of salt, but nonetheless, this
does have an impact in one and wondering how much
of your influence this has when your team is looking
at something like a buyback program. Yeah, well
, we don't, we don't put too much energy
toward watching the stock day today for sure. But
we did, we did as part of our earnings
this week, announced approval of a buyback program from
our board for up to$400 million. And,
you know, basically, look, this isn't really
some kind of elaborate, you know, allocation of
capital strategy. It's really just economic opportunism. You
know, when we see, um, we're a
very fast growing cash generating business that is not very
balance sheet heavy meaning we don't need tons of money
to grow our business. And when we see what
looks like incredible economic opportunity, which at certain times
could be the upstart stock that's available in the market
. We're going to take advantage of it. So
we're just trying to be capitalists and be prudent um
, thoughtful of, of, of shareholders and um
, and also a little bit flexing the fact that
we're a very profitable company despite the fact that we
Grew more than 200% year on year. Well,
there's a lot of surprise right to this announcement of
the buyback program because you guys have only recently gone
public. You guys went public in December of 2020
. Yeah, you bet it's unusual, but it's
also unusual for a company at our stage to be
as profitable as we are. And look, I
mean, there's a price at which we would probably
be issuing more uh equity and and and raising money
and there's, and there's a price at which it
makes sense to be buying it. So, you
know, we, we have a business that has
a lot of flexibility in it. So, um
we're gonna take advantage of that and where some of
the, our peers, fintech peers don't have that
luxury because, you know, they're, they're burning
a lot of cash still and and not in a
position to buy back their shares, but hey,
we are, and if it makes sense to take
advantage of that, then we will do. So
I want to focus in on that growth a little
bit. You did also guide up in this quarter
, um how can you maintain this momentum? Well
, we're kind of a one of a kind company
, you know, applying artificial intelligence to lending uh
in our mind is an enormous opportunity and in our
view, were first and foremost in the pole position
to drive that. So we're at the very early
stages of an enormous secular change in how credit works
, how banks and other lenders originate credit. So
not surprising to us that we have an opportunity to
grow at high rates, hopefully for a very long
time because it's not a change that's going to happen
overnight. It's going to happen over the course of
a decade or more. But the scale of it
is just enormous, even the categories that were already
either in or have announced our intention to be in
, you know, within the next year or so
. Um there's more than$6 trillion in annual originations
. So it's just an enormous category and we feel
like we're, we're first in line, we know
that the overall market has been really worried about the
Federal Reserve. I'm wondering if you have any,
if you're concerned at all, how is that going
to impact upstart? Um if we do see the
fed hike interest rates as soon as next month.
Yeah, I mean we're not a terribly interest rate
sensitive company. Um the most popular use of upstart
loans from consumers is paying off credit card debt and
credit card rates tend to move up as fed interest
rates move up. So um in effect the spread
, there doesn't doesn't really change. Um So uh
you know, of course there's always some things at
the margins um if interest rates went up a ton
, could it impact our volumes, perhaps, but
we're not generally a super interest rate sensitive business.
The important thing for us is when you're developing models
risk models to predict performance of consumer credit, how
savvy are they to the macro situation that in which
they're operating and that can mean unemployment rates. It
can mean interest rates. So what's really important to
us is that the models are very sophisticated and can
handle changes in the macro environment that we're we've seen
in the last couple of years and we're gonna continue
to see going forward now in your earnings call.
You noted how strong auto lending is. There's also
the stat that automation said around half of the cars
getting to dealers are already sold. How does this
benefit you and your company? Yeah. So we
, we kind of selected auto lending as the second
category of lending. We would apply our technology to
and move into just because it's enormously inefficient. I
mean, I don't know the last time you went
to a dealership and bought a car, but it's
, you know, it's, it's a an experience
. I think about 1% of Americans actually say,
they enjoy. so there's a lot of fixing to
be done when it comes to buying cars. And
one of the most difficult parts of all of it
is that finance step where you go sit down in
the office across and watch that finance person type into
their computer for an hour or two. That is
a distinctly displeasing part of the process. And um
, you know, some people are fortunate and they
walk in and they'll get 0% finance from the manufacturer
, that kind of thing and think, wow,
this is awesome. But you know, a huge
fraction of americans are paying 8, 10, 12
, even 20% interest rates on buying a car.
And most of those people are way over paying.
So bringing our technology to that market makes a ton
of sense and we think it's going to be enormously
impactful, both for the american consumer as well as
for our bank and credit union partners. I mentioned
that I was sitting down with you to my friend
Stephen Guilfoyle over at real money and he was wondering
what your expected margin profile looks like on automotive refinancing
. And at what point do you do you expect
competition to become active in what is really an underserved
market? Yeah, we've had very high contribution margins
in some ways. I feel like we've set the
bar a little too high because it's not really our
interest to maximize profits as a business today, it's
a little more enormous growth opportunity. So we like
being profitable. I think having that proof that we
generate good contribution margins is important to us, but
ultimately, you know, we're such, it was
such an early stage company. We don't want to
overdo it per se. We want to really grab
market share and really shake up the market. Um
, and in the auto world, you know,
we're much earlier, we've really just started to scale
in that business and give some guidance. We expect
that on our platform, our banks will originate about
, you know, we estimate a billion and a
half in auto originations this year, which is modest
compared to our core business but it's a great start
and you know, we believe over time the margin
profile will be similar to our existing personal loan business
, but we'll have to grow into that at the
early stages. There's a lot of inefficiencies and we're
not exactly focused on the margin per se, as
much as really getting the system working, scaling up
, bringing on bank partners etcetera. Dave when I
was listening to your earnings call, what stood out
to me was your note that you use Google,
Apple and amazon as your north star. I'm wondering
what you've learned from these companies. Yeah, you
know I was at Google, I I joined in
2004 at the beginning of it probably six months before
it became a public company. So there's about 15
, or so people there at the time. And
so I was there through a pretty formative stage of
growth. Um the real hockey stick of Google's growth
in the next eight years or so. And you
know, Larry and Sergey were just adamant that we
were not going to become a week middle aged company
. We really wanted to stay nimble, Stay focused
in how we got things done, how we brought
new products. He he always said, you know
, a bigger company should be more willing to take
risks because they can survive them a small company often
, you know, if you take the wrong risk
and put you out of business. So he really
larry page in particular pushed and pushed for google to
be able to operate as a nimble startup company even
at enormous scale. So that's really my reference there
is is we want to be a company that can
grow and grow and still operate in a very nimble
way, not become sort of a sedate, you
know, middle aged type of company, that's that's
not who we want to be. So you're gonna
continue to see where to try out new things,
take risks where you can that's right. I mean
part of it is, you know, the culture
we encourage in the company, the people we bring
into the company. Um there's a certain type of
person who comes in and they're just happy to go
along for the ride and there's some that come in
that are drivers like they want to make a difference
, they want to build a product themselves and we
need that sort of latter type of person because we
have a long way to go. There's a lot
of opportunity for us to bring ai to credit,
you know around the world to all different types of
credit. So we need the right kind of people
that are ready to do that because none of it
is easy, It is a very complicated product area
, it's heavily regulated. Um so there's a lot
of hard problems to solve and you just really need
the right kind of people on board to do that
. Well on google for example is so well known
alphabet is so well known for how many investments it
makes. Are you willing to mimic that with upstart
going forward? Yeah, we're a little different.
You know, I was also in my history at
Apple, uh, quite a long time ago before
I was at google. And so sometimes we like
to think what's the best model for it? Is
that apple like, is it, is it google
like as an amazon like And I think if anything
were probably between google and apple and, but by
that, I mean, you know, google does
try a lot of things fail at a lot of
things sort of let 1000 flowers bloom and then you
know, see which ones really take off, at
least in the earlier days of google when I was
there. That was certainly the culture. Apple of
course is quite the opposite. Put all the wood
behind some very specific bets, very limited bets and
I think we're a little bit in between though,
if I had to say anything, I think our
goal is to be a bit more apple, like
, um, in, in such a regulated industry
, you can't just, you know, take the
shotgun approach and see what works, you really have
to place your bets. And I think that's the
company we've become? So I guess overall if I
had to, you know lean one way, you
know Apple is a little better battle, better metaphor
for how we develop products now. Dave, I'm
sorry that I have to ask this question but you
unknowingly opened this store, you've talked about with us
taking risks now. Also on the earnings call,
you noted how upstart can help forward thinking banks Jpmorgan
for example launched its first bank branch in the metaverse
this week. Do you see a future for banking
and and lending in the metaverse? Well look I
describe myself as a Web three student uh in a
metaverse skeptic to be honest. So uh we are
very interested in crypto as a company and I am
personally and um really exploring where there's enormous opportunities there
. But back to your question metaverse, you know
the idea of spending a lot of time wearing goggles
in a, in a virtual world with no legs
, not all that appealing to me, I'm the
person that really loves the real world and thinks we
ought to be investing more in that and so that
you know, who knows maybe I'm just too old
for the metaverse but it's not all that appealing to
me. I I really feel like there's just a
lot to offer being with people in the real world
being present and that's my plans personally? Alright then
Cryptocurrency, do you think the upstart for example as
some companies have started doing, Do you think you
could see something like Bitcoin on the balance sheet?
Would you accept Cryptocurrency as payment in any regard?
Uh definitely don't see us as as someone who would
put our balance sheet in crypto, I I don't
necessarily see the advantages in doing that. I think
, you know, the treasury strategy as a whole
different question. What we're interested in is is there
are there areas in the in the sort of industry
we serve banking lending that world where crypto can make
a dramatic difference. Of course, there's there's there's
a whole lot of lending going on in crypto essentially
um people who are borrowing money so because they don't
want to sell their crypto. But having said that
, we do think there are some opportunities for kind
of a Web three enabled infrastructure that can improve things
as they work in the real world, you know
, particularly around how credit works and um so we're
exploring that we have a lot of interest in it
, we don't have anything really to report yet,
but we don't just look for things that, you
know, are based on the greater fool theory,
you know, like inventing something that we just hope
someone else will buy at a higher price. That's
that's I mean I don't like to cast aspersions on
any particular parts of Web three, but we're sort
of looking for, where there's really obvious opportunity to
do something dramatically better than it works in the in
the world today. And we definitely have some feelings
that there's some opportunities there and so we're exploring them
. Well. Dave, I greatly appreciate you going
down a bit of a rabbit hole with us and
I want to congratulate you on an excellent quarter.
Thanks Catherine.