Legendary investor Peter Lynch once said, âKnow what you own and know why you own it. In other words, it’s important to understand a business – what it does and why it’s important – before investing in it.
Building on this idea, Latch (NASDAQ: LTCH) and Holdings reached (NASDAQ: UPST) have the potential to have a huge impact on the world, and both stocks seem like smart additions to a diverse portfolio. Here’s what investors need to know about these tech companies.
Latch specializes in smart lock technology. The company combines its operating system (LatchOS) with a portfolio of first-party hardware, including access devices, delivery assistants and intercoms, allowing customers to streamline and secure the entry experience . Rather than relying on keys, residents of buildings with the Latch feature can lock and unlock doors (and visually verify visitors) through the mobile app.
At the same time, the company’s cloud-based software helps property managers operate more efficiently, allowing remote access permissions to be controlled. To add, the premium experience created by smart lock technology also increases income from $ 200 to $ 500 per apartment per year, while reducing maintenance expenses from $ 100 to $ 300 per apartment per year, according to internal estimates.
Since its launch in 2017, Latch has gained a foothold in the apartment market. More than 10% of newly built apartments in the United States are equipped with its hardware and powered by its software. But the company recently brought its technology to trade offices, and investors have every reason to believe that Latch will be successful in this market as well.
As part of its expansion, the company added a new service to its platform: Latch Visitor Express. This product simplifies visitor access to corporate offices and other commercial buildings, and Latch has previously won contracts with iconic properties like New York’s Empire State Building, Brookfield Place, and Rockefeller Center.
Overall, Latch differentiates itself by providing an end-to-end smart building solution, including tools for smart access, guest and delivery management, and smart home devices. This holistic approach stands out in a fragmented market, where many competitors only handle part of the smart building experience, and others rely on third-party hardware, which means customers have to put together solutions. incomplete.
In June, Latch went public through a Special Purpose Acquisition Company (SPAC), and it’s still a very young company. That being said, Latch delivered a strong financial performance in the first half of the year. Revenue jumped 186% to $ 15.6 million, and total bookings – a measure of hardware and software commitments not yet recognized as revenue – reached $ 167.5 million , up 96% from the previous year period.
Looking ahead, Latch is well positioned to maintain this momentum. The company has never lost a single customer, which underlines the rigidity of its technology. And the average lifetime value of each customer is 6.8 times the acquisition cost, according to management, demonstrating an efficient business model.
2. Successful holdings
Traditionally, banks have used credit scores to determine which borrowers are eligible for loans and at what interest rates. But this methodology relies on a limited number of variables, which means that banks often fail to quantify risk precisely. As a result, many creditworthy people are turned away while others are overcharged, effectively subsidizing the losses of borrowers who default.
To fix this faulty system, Upstart relies on artificial intelligence to quantify the risks. Its platform captures over 1,600 data points per claimant, then measures those variables against 10.5 million reimbursement (and counting) events. This system captures traditional FICO scores, but Upstart also takes into account other information such as work history, educational background, etc.
Ultimately, Upstart’s AI algorithms get a little smarter every time a borrower makes or misses a payment, which helps their banking partners predict risk more accurately. And the benefits are clear: Upstart believes its platform enables banks to reduce loss rates by as much as 75% while keeping approval rates constant. Alternatively, these banks can approve more borrowers (at lower interest rates) while maintaining constant loss rates.
In short, banking partners benefit from more business and consumers benefit from better access to credit, creating a flywheel effect: as lenders make more loans on the Upstart platform , the company captures more data. This makes its AI engine smarter, improving Upstart’s ability to approve more borrowers at lower interest rates.
This value proposition has translated into impressive growth. In the last quarter, Upstart generated 286,864 loans, up 1,605% year-over-year. Revenue soared 1,018% to $ 194 million, and the company posted positive GAAP earnings of $ 0.39 per diluted share.
Even so, Upstart has barely scratched the surface of its addressable market. Every year, U.S. lenders provide $ 4.2 trillion in consumer loans, but Upstart only generated $ 2.8 billion of that total in the last quarter. Considering the scale of its opportunity, it’s not hard to imagine Upstart multiplying many times over in the years to come.
Build up a position slowly
In either case, these companies benefit from the unstoppable march of technology. Latch is replacing the traditional lock and key model with a modern, scalable solution, and Upstart intends to do the same with consumer loans. But a disruptive business model alone does not guarantee a smart long-term investment.
This is why it is important to slowly build positions in these stocks, following the progress of their expansion. Latch sees a huge opportunity in the commercial sector, and Upstart has extended its platform to include auto loans. If things go well for companies, that would be another bullish signal to build a bigger position in their stocks.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.