Upstart rallies 30% as AI-driven lender tops expectations
Upstart (UPST) delivered a stronger-than-expected performance in its third quarter, posting a revenue of $162 million, which topped analyst estimates of $150.4 million. The company also reported a narrower-than-anticipated adjusted loss per share of $0.06, beating the expected $0.15 loss, and achieved an adjusted EBITDA of $1.4 million. For Q4, Upstart guided revenue to approximately $180 million, slightly above the Street's $162.27 million estimate, with an expected contribution margin of about 59% and adjusted EBITDA of $5 million, which reflects continued improvement in its profitability.
Key metrics this quarter highlighted significant growth in Upstart's platform activity, with loan originations reaching 188,149, a 30% increase year-over-year and 43% sequentially. CEO Dave Girouard attributed this growth to the company's enhanced AI models, which have led to higher conversion rates, reaching 16.3% in Q3 compared to 9.5% in the same quarter last year. Upstart’s transaction volume totaled $1.6 billion, marking a robust recovery in lending volume, which was instrumental in returning the company to a positive adjusted EBITDA.
Upstart's third-quarter financial highlights underscore its return to growth despite challenging macroeconomic conditions. Total revenue increased 20% year-over-year, and total fee revenue grew 14% over the same period. Contribution profit rose to $102.4 million, though the contribution margin slightly decreased to 61% from 64% in the prior year, indicating strong platform profitability but some pressure on margin. The company’s GAAP net loss narrowed to $6.8 million from a $40.3 million loss in the same quarter last year, showcasing its efforts to improve operational efficiency and financial health.
Looking ahead, Upstart provided optimistic guidance for Q4, projecting revenue growth and an adjusted EBITDA of approximately $5 million. The company anticipates a contribution margin of around 59%, signaling continued profitability in its lending operations. While Upstart forecasts a GAAP net loss of $35 million for the upcoming quarter, it expects adjusted net income (loss) to improve to approximately ($5) million, further indicating a positive trajectory.
CEO Girouard emphasized Upstart’s position as a leader in AI-driven lending, noting that increasing adoption of AI by financial institutions supports Upstart's growth prospects. He expressed optimism about the future of AI in lending, particularly as banks and credit lenders continue to integrate predictive AI models for credit decision-making. Girouard noted that Upstart’s proprietary AI models, which focus on predictive analysis, are proving effective in generating greater conversion rates and transaction volume on the platform.
In summary, Upstart’s Q3 results reflect a promising turnaround fueled by robust growth in lending volume and strong platform efficiency. Although the company is not without challenges, particularly around margin pressure, its AI-driven model and strategic advancements position it well for future growth. Investors reacted positively to the earnings, with shares rallying over 30% post-report, indicating market confidence in Upstart’s ability to capitalize on its AI technology and strengthen its leadership in the fintech lending space.
The stock is up 200% since early August. This would give us some pause and unlikely to chase it higher.