Upstart Is in Trouble if It Can’t Prove Its CEO Is Worth His Income

UPST stock - Upstart Is in Trouble if It Can’t Prove Its CEO Is Worth His Income

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Upstart Holdings (NASDAQ:UPST) filed its annual proxy earlier this month. According to the form, CEO Dave Girouard received almost $15 million in total compensation, nearly all of it in UPST stock options and awards. 

Given its share price is down 48% year-t0-date, those stock options and awards aren’t nearly as valuable as in October. At the time, shares were trading above $400.

The firm’s artificial intelligence-based lending platform does make it stand out in the fintech crowd. However, with its Q1 2022 earnings coming up on May 9, investors will be watching to see if its highly-paid CEO delivers the goods or chokes on its vast number of borrowers with lower FICO scores.   

In early February, I suggested UPST stock at $115 was offering growth at a reasonable price. Now trading in the low $70s, I expect Girouard to deliver on his rich compensation. 

Upstart’s CEO got $7.8 million in stock options, $6.7 million in stock awards and a $455,000 salary for total compensation of $14.96 million. However, that doesn’t tell the whole story. 

As of March 15, Girouard held 12.5 million shares of Upstart, good for 14.46% of the company’s outstanding shares. As a co-founder of the company, that’s not out of the ordinary. When Upstart went public in December 2020, Girouard sold 1 million shares for $18.6 million in proceeds. 

Since then, he’s sold another 544,000 shares. He sold several of them starting in September 2021 as part of a 10b5-1 trading plan at prices between $200 and $340. His most recent sales at the beginning of April were around $108. Conservatively, he’s generated $108 million from those stock sales. 

And, as the DEF 14A shows, he keeps getting more. A lot more.

As I stated in the introduction, investors ought to be looking for something in the May report to indicate the company’s lending algorithm is living up to its reputation for weeding out prime borrowers amongst those with lower FICO scores. 

If it shows its algorithm continues to work as it was intended, then I would say Girouard’s earned every penny of his multi-million stock options and awards. But that’s a big “if.” 

A recession could be around the corner. If it’s taking on more borrowers with low FICO scores and they turn out to be duds, UPST stock won’t be $70; it will be half that or worse. Mark May 9 on your calendars. It could be a difference-maker.              

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


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