Every now and then a star, a legitimate star, is born. Just like in the movies, whether it be Judy Garland or Lady Gaga or Barbara Streisand.
We’ve had a ton of new issues this year, but so far I see only two legitimate stars, two that define what it means to be a company that may the next biggest thing in its category.
And coincidentally they both reported last night: Doximity (DOCS) and Upstart Holdings (UPST) .
Doximity is a company doctors love to use and learn about everything — new drugs, new methods and patient communications.
Upstart is one of the premier disruptive names of our time, getting quick loans to deserving people using artificial intelligence to be sure they can pay those loans back.
Before I get started, let me tell you two things about these companies. One is that, unlike most of the junk that has gone public during this year of massive offerings, both of these companies make money.
Both stocks are incredibly high after reporting these breakout quarters. They are never going to be cheap. But in a vibrant hold-to-buy about Upstart Holdings by Citi, an analyst slapped on a $205 price target for this $179 stock. I bet that’s going to have to be raised soon.
Or, as JP Morgan said about Doximity: “Reiterating overweight, no need for a second opinion.”
With those caveats let’s dig in.
Doximity is a tremendous digital platform that counts 80% of doctors and 50% of nurses as members. Pharmaceutical marketers salivate for that kind of audience. My wife was a detail person for Medicis, a once great dermatology company, and she used to have to go for miles and miles to see doctors and try to sell them Restylane, which eliminates wrinkles around the mouth area, not unlike Botox.
Expensive process. Doximity does it much cheaper and better.
Now the drug companies just need to place ads on Doximity. Health care providers can recruit from it. Doctors can find out about new treatments and trials and get articles about them. Perhaps best of all for some docs, they can call patients from it and it blocks their cell, a necessary evil given how much patients like to bombard their doctors with questions.
The numbers: Revenues up 72%, up 100% year-over-year. Forty three percent earnings before interest, taxes, depreciation, and amortization margins vs. 30% expectations. Extraordinary. Indeed, no need for a second opinion.
Upstart makes loans for other banks, so it has no credit exposure. It’s based in the cloud and partners with other banks to make loans that have, so far been so strong in their origination that one bank just suspended its use of FICO scores. CEO Dave Girouard, a former Google (GOOGL) executive, has prided himself in creating a model that obsoletes the 30-year-old FICO method in part because FICO “leaves too many credit worthy Americans out in the cold.”
The numbers: $194 million in revenue, up 60% over the first quarter and 1,018% over last year’s second quarter. The company raised 2021 revenue guidance from $600 million to $750 million after raising it from $500 million the previous quarter. The company has GAAP net income of $37 million, that’s right GAAP, not funny money profit.
A proud Dave wrote me a simple “AI lending is for real,” and I believe him, although he’s a bit given to hyperbole — calling it the most transformational change in lending in 5,000 years. Let’s just say it’s one unstoppable disrupter and leave it at that.
What do you do with the companies’ stocks? Stars last for a long time. So will these. you buy some to start a position and then you wait for them to come in.
If they don’t. Just let ’em run. If they do because of some marketwide sell-off, take as much in as you can.
They are the best of the best of 2021.
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