UPST Q1 Earnings Call: Revenue Beat Led by AI Model Gains, Guidance Edges Higher

AI-powered lending platform Upstart (NASDAQ: UPST) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 67% year on year to $213.4 million. On the other hand, next quarter’s revenue guidance of $225 million was less impressive, coming in 0.5% below analysts’ estimates. Its non-GAAP profit of $0.30 per share was 76.6% above analysts’ consensus estimates.

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StockStory’s Take

Upstart’s Q1 results were shaped by rapid adoption of its AI-powered lending models and increased originations across core product lines. CEO Dave Girouard highlighted that improvements in model accuracy and automation drove an 89% year-on-year increase in platform originations, with conversion rates rising from 14% to 19%. Growth was especially robust in auto and home equity products, while super prime borrowers became a larger share of originations, reflecting the company’s ability to serve a broader credit spectrum. Management attributed higher profitability to a mix of technology-driven efficiency gains and disciplined cost management.

Looking ahead, management’s guidance reflects both optimism and caution. The company modestly raised its full-year revenue target, but Q2 revenue guidance came in slightly below Wall Street’s expectations. CFO Sanjay Datta cited continued macroeconomic uncertainty, including the effects of recent trade policy and persistent inflation, as key considerations in the outlook. Management emphasized that funding partnerships and ongoing model innovations position Upstart for further growth, but also pointed to ongoing margin pressures as newer products scale and the business mix evolves.

Key Insights from Management’s Remarks

Upstart’s leadership credited its Q1 financial outperformance to strong platform growth, enhanced AI models, and greater penetration of super prime borrowers. The following factors were central to recent results and will likely influence execution in future quarters:

• AI model advancements: Management cited the introduction of machine learning “embeddings” in the personal loan underwriting model as a key driver of improved credit risk separation and conversion rates. This technique enables the platform to identify nuanced borrower patterns that traditional underwriting might miss, resulting in higher approval rates and better loan performance.
• Super prime borrower growth: The share of originations to super prime borrowers (credit scores above 720) increased to 32%, broadening Upstart’s addressable market. Management’s “best rates, best process for all” initiative helped secure more competitive pricing and improved win rates in this segment.
• Expansion in home and auto lending: Home equity line of credit (HELOC) and auto loan originations grew 52% and 42% sequentially, respectively. HELOC product coverage expanded to California, now reaching nearly 75% of the U.S. population. Automation and instant verification features contributed to faster processing and higher borrower satisfaction.
• Funding diversification: Upstart added Fortress Investment Group as a committed capital partner and signed 15 additional lending partners for super prime offerings, with over 50% of funding now sourced from committed partnership agreements. This funding mix supports resilience and scalability amid macroeconomic volatility.
• Servicing and operational automation: The company automated 90% of hardship applications and increased debt settlement acceptances by extending repayment terms. Enhanced automation in servicing is expected to reduce loss rates and pave the way for a potential standalone servicing platform.

Drivers of Future Performance

Management’s outlook for the remainder of the year centers on continued AI-driven model improvements, expanded funding partnerships, and careful monitoring of macroeconomic risks.

• Model innovation pipeline: Upstart expects further gains in origination efficiency and credit risk management through ongoing machine learning enhancements, including the broader use of embeddings and new underwriting techniques.
• Scaling new products: The company aims to accelerate growth in HELOC and auto lending, leveraging expanded geographic coverage and automation to capture larger market share. Management noted that maturing these products will influence margin dynamics as their contribution increases.
• Macro and funding headwinds: Persistent inflation, trade-related cost pressures, and a cautious approach to interest rates are factored into guidance. Management highlighted that committed funding partners provide stability, but overall growth will still depend on borrower acquisition and healthy consumer demand.

Top Analyst Questions

• Dan Dolev (Mizuho): Asked about the Walmart/OnePay partnership’s strategic importance and near-term financial impact. Management clarified the agreement is early stage, not material to 2025 guidance, but offers long-term potential.
• John Coffey (Barclays): Inquired about the sustainability of conversion rate improvements and the visibility of macro index reporting. Management expects conversion rates to rise with ongoing model advances and clarified macro index presentation changes were for clarity, not de-emphasis.
• Simon Clinch (Redburn Atlantic): Pressed on contribution margin trends and demand for personal loans amid high credit card balances. Management attributed lower contribution margins to a higher super prime mix and early-stage margins in new products, while noting stable loan demand.
• Unidentified Analyst (Needham): Sought details on funding mix amid market volatility. CFO Sanjay Datta explained that committed capital partners have provided stability, and funding channels are well balanced despite market fluctuations.
• Rob Wildhack (Autonomous Research): Questioned why increased funding capacity from Fortress did not lead to a more significant raise in guidance. CEO Dave Girouard explained growth is limited by borrower acquisition economics, not funding availability.

Catalysts in Upcoming Quarters

As we track Upstart’s progress in the coming quarters, our analysts will focus on (1) the impact and scalability of new AI model enhancements on origination volume and credit outcomes, (2) the ramp-up of HELOC and auto loan products, including further geographic expansion and automation, and (3) continued diversification of funding sources and stability of capital partnerships. We will also monitor any early contributions from the Walmart/OnePay partnership and signs of margin stabilization as the company’s product mix evolves.

Upstart currently trades at a forward price-to-sales ratio of 4.2×. Should you load up, cash out, or stay put? The answer lies in our free research report.

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