Upstart Beats Q3 Estimates: Is UPST a Buy at Two-Year Lows?

Upstart Holdings reported third-quarter earnings that exceeded analyst expectations on both revenue and earnings per share. Revenue grew 34% year-over-year to $370.5 million, beating the consensus estimate of $363.7 million. Loan originations rose 44% to $4.1 billion, though they declined sequentially, indicating some macroeconomic pressure. On the bottom line, GAAP earnings per share came in at $0.33, up from $0.23 a year ago and well above the $0.23 estimate.

The company's key metric, contribution profit, which reflects core profitability before indirect expenses, surged 48% to an all-time high of $218 million. This demonstrates Upstart's ability to generate profitable growth even in a challenging environment. However, guidance was mixed: Upstart raised its full-year revenue from fees to $1.32 billion but cut its adjusted EBITDA outlook to $260 million, citing a weaker macro environment and lower profits on non-core business segments.

A major highlight was the secured loan business, which includes auto and home loans. It achieved positive contribution margin for the first time, a quarter ahead of schedule. Secured originations jumped 194% to $587 million, with auto loans tripling and home loans doubling. While sequentially flat, this milestone signals significant long-term potential in a massive market.

Upstart's stock has been under pressure, hovering near two-year lows, as investors weigh the company's growth prospects against macroeconomic uncertainties. The mixed guidance reflects these concerns, but the operational improvements suggest the company is on the right track.

The earnings report is crucial because it shows Upstart can execute effectively despite a tough macro backdrop. The record contribution profit and positive contribution margin in secured loans indicate that the company's core business is becoming more profitable and scalable. This is important for long-term investors who are betting on Upstart's AI-driven lending platform to disrupt traditional lending.

However, the cut in EBITDA guidance highlights the near-term risks. Higher interest rates and economic uncertainty are affecting loan demand and the profitability of loans held on the balance sheet. This could continue to pressure the stock in the coming quarters. But the company's ability to grow originations and improve margins in this environment is a positive sign.

The secured loan business reaching profitability ahead of schedule is a significant milestone. It opens up a huge addressable market and diversifies revenue streams beyond unsecured personal loans. If Upstart can maintain this momentum, it could drive substantial growth in the years ahead.

Overall, the report reinforces the bull case for Upstart as a long-term growth story, but investors should be prepared for volatility as macro conditions evolve.