The letter discusses non-bank lenders like Upstart in the context of asset-backed financing (ABF) and the potential risks associated with explosive growth in this sector. It raises concerns about the replacement of traditional credit cards with BNPL and FinTech products, particularly among younger consumers. The manager notes that the entry of new originators with limited track records could lead to a 'race to the bottom' in lending standards. Upstart is mentioned alongside other companies, but no specific bullish or bearish stance is taken regarding its future performance.

We continue to believe Upstart’s business has substantial multi-bagger potential. Upstart grew revenue 102% YoY while turning a $(55)M loss into a $6M profit. Auto and HELOC products gained meaningful traction, and when combined with SDL, Upstart’s secondary products made up more than 10% of total origination volume. Despite a recent decline in share price, we anticipate that new capital will support new investment initiatives as our UPST position nears full size.

We significantly increased our investment in Upstart, our largest holding, this quarter, following an exceptionally strong Q4 earnings report. In fact, we boosted our position by 12.67%, a significant size increase considering it was already our biggest position. Let us be clear, our conviction in Upstart is unwavering. While shares have fallen roughly ~60% since February, our conviction has only grown. Upstart reported $219 million in Q4 revenue, smashing its own $180 million guidance, topping Wall Street’s $182 million estimate, and exceeding our internal forecast of $200 million. More importantly, Q4 solidified that the Upstart comeback story we’ve been sharing with you all is in full force.

Upstart is a leading AI-powered lending platform that partners with banks and credit unions to improve access to affordable credit. By leveraging machine learning algorithms, the company evaluates non-traditional risk factors to provide more accurate credit assessments, enabling better loan approvals and pricing. Upstart aims to make the lending process more inclusive and efficient while helping its financial institution partners drive growth and manage risk effectively.