THIS is a HUGE WARNING to ALL Investors.

hey everyone me kevin here this one

company just gave us a warning to the

economy and we've got to talk about it

because it reflects what could be

happening with the consumer the lending

company is upstart but not only are we

going to talk about the disaster that

just happened with upstart and what they

said about the consumer and banks which

is very important we're also going to

talk about what else is happening in

spaces related to this especially in

advertising with youtube channels we'll

talk about that all in this video but

first i got to give you a heads up about

the guidance first they said that they

would guide 300 million dollars of

revenue for q2 which they did however

they just updated us and said oh it

actually looks like our revenue for q2

is going to be 24

lower than that and that serves as a

really bad warning sign for what we

could expect for earnings coming up a

lot of downward revisions see it looks

like in my opinion at least ceos and

executives we're still optimistic that

oh we'll be fine for q2 after a decent

q1 some headwinds because of omicron but

overall a decent q1 well now they're

realizing oh crap wait a minute this is

bad we saw it with target remember

target gave us guidance then they're

like oh no wait this is worse q2 is

going worse and then that was three

weeks after earnings so they gave

earnings they're like everything's great

three weeks later oh god it's not three

weeks later oh it's really not and they

had to revise down again target had to

revise down their guidance twice after

giving their first guidance all within

one quarter like you're seeing sort of a

rapid deterioration there right the one

place you're not seeing a rapid

deterioration though is in the courses

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that price goes up but let's take a look

in here okay so what did upstart tell us

upstart tells us here the following

first they give us the the new guidance

they now expect to lose about 30 million

dollars in the quarter rather than their

near break even estimate before but this

right here was very interesting ignore

all my additional notes there for a

moment just start right here where my

laser pointer is

inflation and recession fears have

driven interest rates up i mean this

makes sense that interest rates have

gone up right and and so the the initial

thought would be oh okay well maybe the

consumer is just borrowing less right

wrong consumers are actually putting

more money on their credit cards right

now and this is kind of the argument

that a firm makes right oh people are

going to spend more money with a firm

sure but that doesn't no good if they're

defaulting at higher rates right but

listen to this

and these inflation and recession fears

have put banks and capital markets on

cautious footing okay that's a red flag

that's a red flag our revenue was

negatively impacted by two factors

equally first our marketplace funding is

constrained so let me explain what that

means

upstart is a company that does a bunch

of things they do here i wrote it down

right here too so you can see it in the

green box they do

personal loans car loans wedding loans

dude if you need a loan for your wedding

do not have a wedding like

spend it on a little honeymoon instead

like weddings are such a freaking rip

off of an industry anyway home

improvement loans medical loans moving

loans moving loans dude

okay credit card loans debt

consolidation loans like these most of

these loans are loans that do appeal to

a little bit more of a subprime style

borrower the upstart website says

they'll give loans to people with a

credit score as low as 300. i didn't

even know credit scores went down to

300. uh you know there is a value

penguin i don't know if they were

sponsored to say this but value penguin

suggested that the average credit score

start at 700 i don't believe that

remotely or quite frankly at all but

whatever so so they're doing these

personal style loans

and what they're saying when they say

our capital markets are constrained is

what upstart's going to do and this is

their business model is they give you a

loan hey here's a 50 000 personal loan

or a 50 000 wedding loan or whatever

they're going to take that loan bundle

it together with let's say 10 other

people's wedding loans and then slice it

up and sell that bundle or in the

individual slices to other investors so

that way upstart makes the loan they get

the customer they make the loan they

take money and fees for making the loan

they take some kind of fee for actually

creating this product for institutional

businesses and then institutions come in

and they swoop up these loans that's the

market that buys loans so think of loans

as the product and this is why in their

statement they're still trying to brag

about how good their returns have been

in 2020 and how good they've been in

2021 and how we think we're going to

target returns in excess of 10 percent

for for people who basically take our

crappy loans

but the banks and capital markets are

like yeah you know what going into a

recession we don't really want your

crappy loans we are gonna take a little

bit of a step back so this is actually

nothing about the consumer saying that

the consumer doesn't want to borrow it's

saying that banks are starting to go

yeah no we we don't want those risky

loans anymore that's a danger but not

only are banks saying it

upstart themselves

are doing it listen to this

so the first concern was the capital

markets are constrained but listen to

this the second concern is we took

action to convert loans on our balance

sheet into cash okay when you

uh have a loan that somebody owes you so

for example

let me put it this way let's say you

lent me 50 000

on your balance sheet you have a loan

that says kevin owes me fifty thousand

dollars well if we go into a recession

and you're like you know i'd rather have

that cash you might take that loan and

go to uh you know strong man personal

finance and go yo hey strongman uh i'll

sell you kevin's loan for 45k i just

really need the cash right now strongman

might be like dude man we're going to

recession no thanks but

strong man uh or or rather the you you

might be trying to raise that cash

because you don't want these loans in

this kind of environment you want cash

you want to raise money and so the fact

that upstart is telling us that not only

are banks capital constrained or

unwilling to give

you know to buy out these loans

basically but the fact that upstart is

trying to raise cash and they're losing

money in other words of course they have

to raise raise cash this makes sense you

start seeing cracks this is the first

quarter that upstart is going to lose

money since their ipo their stock has

absolutely plummeted you don't want to

be in lending companies you don't want

to be in a firm during a recession right

just wait for defaults and allowance for

doubtful accounts to skyrocket i think

the banks are still going to get tagged

holding on to a lot of loans especially

companies like a firm

so this this is a potential liquidity

danger now something that you can do is

you can look at upstarts quarter one

reports the quarter one results and what

i would recommend doing and this is

something that we regularly do in our

course member live streams it's so so

important to do is you have to look at

the balance sheets of these companies

you have to understand that every single

quarter like you can't just do a

fundamental analysis two years ago and

then never look at these balance sheets

again you've got to get into the habit

of being able to pull these cash flow

statements up quickly and being able to

know exactly what to look for and this

is one of the big things that i instill

in my course members is like we must

teach you how to fish we must do that

together and then that way everybody can

make their own opinions and judgments of

a company so let's look at their

statement of cash flows from the last

time and you know what let's actually

start with even their balance sheet

because if we jump on over to the

balance sheet we can see if they have

risks of potential bankruptcy coming up

right so in the first quarter of 2022

and usually a company that just ipo'd

isn't even close to going bankrupt but

anyway

they had let's see here loans see right

here on their balance sheet look at that

they got fat

600 million dollars worth of loans on

their balance sheet

that's almost double what they had at

the end of last year no wonder they want

to convert that into cash because they

have less cash now than they did so they

have with restricted cash they have

about one billion dollars

of cash at the end of the first quarter

they have liabilities

of

borrowings oh wow they've borrowed about

770 million dollars they've got payables

here of 140

so 140 plus 770

that works out to debt of about 910

million dollars they've got accounts

payable that brings them to 920. i'm not

going to

consider the lease because that's more

of an operating expense these recruit

expenses that's fine that's more

operating

i mean i want to know what borrowings

are because that's a lot of money 900 i

mean basically if you look at that way

if they have a billion dollars of cash

minus

watch this okay billion dollars of cash

minus 920 million dollars of liabilities

that they have to pay soon that works

out to 80 million dollars of cash but

they're about to lose 30 mil dude

they've only got a couple quarters of

cash left they have to raise money this

is why they're now flooding the market

with their crappy loans that they're

trying to get rid of because they're

like

oh god the writing is on the wall uh

this is going to be the first recession

that upstart has ever gone through and

we need to be prepared because maybe

right now

he's just not prepared okay that's a

problem now it is possible that i'm not

properly understanding what the 700

million dollars of borrowings are we're

i'm doing this sort of on the fly here

with you

uh and and the goal of doing this is

just to show you these are the ways that

we want to be thinking when we're kind

of going through a fundamental analysis

right and so what we can do to learn up

a little bit more is we can go to the

annual report here and let's see if we

can go to the annual report if we scroll

on over to where they discuss their

balance sheet now looking at the

company's cash flow statement which is

something that i teach in our

fundamental analysis lectures every day

we do a fundamental analysis in the

course member live stream we can see

that they have about a billion dollars

of cash and about 200 million dollars of

really current liabilities the reason

we're not going to use the full 770

million of borrowings here to offset

their cash is because 661

million dollars of that is actually the

convertible senior notes that they

issued to investors these have like a

call price of like 280 dollars for the

share price so investors aren't going to

be converting these into shares anytime

soon and these are 20 26 notes so uh the

odds are this is not like a bill that's

coming due anytime soon that's certainly

not a current liability so really in

terms of near-term capitalization risk i

think the most important thing that

upstart can do is make sure that they

limit

the amount of these loans at fair value

they have on their books because if this

really starts plummeting it's going to

affect their ability to get cash or

borrow on their wholesale line of credit

so well most importantly though that the

big message from this press release is

that hey like lending markets are

starting to tighten up and even though

they say here like hey despite the

tumultuous economy upstart powered loans

have performed exceptionally well since

2018 sure but we've been in a bull run

since 2018. this is their forecast for

defaults they actually forecast that

defaults are going to go down uh in in

the latter half of the year i don't know

about that and that's what they tell us

i don't know i don't really believe it

now i do want to give you an update as

well about advertisements uh and no i'm

not talking about the course member

expiring coupon code just talking about

the uh sort of advertisements in general

for for sponsorships

and uh what we're seeing in the youtube

community so for the last three months

i've been warning that i think we're

going to see advertising slow down

because now we don't just have high

inventory issues which usually

correlates with more advertising we

actually have recessionary fears which

generally correlates with less

advertising

and i had mentioned for the last three

months especially to other creators be

careful get ready prepare we're going to

see a decline in advertisements so to be

transparent like last month we did a

whole lot of ads because we didn't think

they would be around much longer and

we're already starting to see some of

those signs companies that were

sponsoring last month are saying hey

we're just pulling out of the creator

sponsorship community in general for

right now until we assess what's going

on with markets uh so it's not a

surprise but that's just a warning sign

that companies are trying to

pull or you know rein in their spending

and what happens when one person spends

less money

one person's uh you know velocity of

money that means they're five dollars

less circulating through the economy by

the velocity of money right so this is

this is how you create a recession like

all the signs are here for this that's

not to say that like oh this is like

massively funny or whatever or that we

shouldn't be considering buying the dip

or whatever

it's just a warning that you should have

cash and you should be out of margin

go buy deals but don't expect 2022 to be

an easy ride whatsoever and upstart is

giving us a very clear warning about

this and that's why folks they're down

what are they down today they are down

21 upstart is down to 26

folks they issued those convertible

bonds and i think it was 281 dollars

anyway thanks for watching check out the

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lectures today and we'll see you soon

thanks bye