Upstart's Q4 2024 Earnings: A Tale of Model Wins and Macro Tailwinds

Upstart Holdings Inc (UPST) reported a strong fourth quarter, with origination volume and revenue growing significantly on a sequential and year-over-year basis. The company's CEO, Dave Girouard, attributed this success to a combination of model and product wins, as well as a macro tailwind that benefited the business in the latter part of 2024.

Upstart's model wins, such as the introduction of the Payment Transition Model (PTM) in Model 19, have led to significant improvements in model accuracy and risk separation. This innovation, along with the use of APR as an input to the model in Model 18, has enabled Upstart to better assess the risk of borrowers and extend credit to more borrowers who are likely to repay their loans. This, in turn, has contributed to the company's consistent growth in origination volume and revenue.

In addition to model wins, Upstart's new product categories, such as auto and HELOC, have grown at an incredible pace. In Q4, both auto and HELOC originations grew by about 60% sequentially, while the small dollar relief product grew a stunning 115% quarter on quarter. These product wins have contributed significantly to the company's overall growth and have helped Upstart to attract and retain loan buyers.

The decline in the Upstart Macro Index in the latter part of 2024 also contributed to the company's strong performance. This macro tailwind, represented by the decline in the index, led to a moderation in default rates and lower APRs on the platform. This combination of factors resulted in an increase in approvability and conversion, driving borrower demand and contributing to Upstart's strong financial performance.

Upstart's CFO, Sanjay Datta, highlighted the company's focus on expanding borrower volumes and striking large deals with counterparties in the short term. In the medium term, Upstart aims to have over 50% of capital committed, with the balance between bank and credit union balance sheet capital and at-will sources like ABS and hedge funds. This strategy will help Upstart to maintain its strong financial performance and continue to grow its business.

In conclusion, Upstart's Q4 2024 earnings call highlighted the company's success in delivering model and product wins, as well as its ability to capitalize on a macro tailwind. The company's focus on risk separation through model innovations, such as the Payment Transition Model (PTM), has differentiated it from competitors and contributed to its competitive advantage. Upstart's approach to risk separation, combined with its product wins and macro tailwind, has enabled the company to achieve consistent growth in origination volume and revenue. As Upstart looks to the future, it will continue to focus on delivering model and product wins, moderating default rates, and lowering APRs on the platform to maintain its strong financial performance and continue to grow its business.