Upstart’s Earnings Reveal: The True Health of Its Business Model Exposed

Upstart just dropped its earnings bomb—and the market's reacting like it chugged three Red Bulls.

Revenue either smashed expectations or fell flat—depending which analyst you ask. The AI lending platform's numbers tell a story Wall Street can't ignore.

Loan volume surged or cratered—no middle ground here. Default rates either tightened or blew wider than a meme stock fan's risk tolerance.

Profit margins got squeezed or expanded—classic fintech volatility. The guidance? Either bullish enough to moon or cautious enough to tank the stock.

Upstart's either revolutionizing credit or becoming another overhyped disruptor—because nothing says 'healthy business' like volatile earnings that give traders whiplash. Just another day in the land of 'transformative' fintech—where reality often undercuts the narrative.

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Incredible growth momentum

At first glance, it appears that Upstart's business is extremely healthy. Total loan volume grew by 154% year over year, and that's in a relatively difficult lending environment. The company reported that revenue had more than doubled, and Upstart surprised investors by surpassing its own guidance and reporting a modest bottom-line profit, despite its own guidance calling for a small loss.

On an adjusted EBITDA basis, Upstart produced an excellent 21% margin, which has steadily climbed from negative-7% a year ago.

One area that is especially worth a mention is Upstart's two newer loan verticals, auto loans and home loans, specifically home equity lines of credit. These combine for less than 10% of the total loan volume today but are growing rapidly. Auto loan originations are up 87% sequentially compared with the first quarter, and home loans grew by 67%. Both are much larger markets than personal loans, so it's important to keep an eye on how these verticals are growing.

Looking ahead, Upstart expects to produce about $1.055 billion in revenue for the full year, which would be the company's first billion-dollar year ever. Not only that, but Upstart is also forecasting its GAAP net income to continue to grow over the latter half of the year.

A couple of figures to watch

Although Upstart's business is firing on all cylinders, there are a couple of metrics that indicate the business might not be quite as healthy as it seems.

For one thing, Upstart is carrying more than $1 billion in loans on its balance sheet, 70% of which are classified as "R&D loans." These are the home and auto loans, as well as other loans being held for testing purposes. However, this is an increase of 30% more research-and-development loans sequentially and could be perceived as a risk factor.

Perhaps the most important number to watch is the conversion rate, which is the percentage of people who request a rate cut and end up getting a loan from Upstart. And this metric has increased significantly, from 15.2% a year ago to 23.9% in the second quarter.

In short, this means that for every 1,000 applicants, Upstart is making loans to 239 of them. That's a 57% higher conversion rate than in the second quarter of 2024. Plus, "superprime" borrowers made up 27% of loans in the second quarter, down by two percentage points compared with the first.

Of course, there could be good explanations. For example, if Upstart's lending partners have more willingness to lend, borrowers could be receiving more enticing loan offers.

However, on the surface at least, it appears that Upstart is approving a greater percentage of applicants, which could suggest that the company is lowering its lending standards to keep growth rates high. Again, not saying this is the case, but it's certainly a metric worth watching.

The bottom line

To be perfectly clear, Upstart's second-quarter numbers were very strong overall, and show not only the potential of the personal loan platform, but also how well the company's proprietary credit model can translate to other types of lending. However, there are some important figures to keep an eye on as the business continues to evolve.