Upstart's Q2 2025 Results Show Strong Growth and AI-Driven Innovations in Lending

Upstart (UPST) Q2 Revenue Jumps 102%

Upstart (UPST -0.07%), a fintech platform using artificial intelligence to improve consumer lending, reported its Q2 2025 results on August 5, 2025. The company delivered a sharp increase in revenue and returned to GAAP profitability, a quarter ahead of its previous forecast. Revenue (GAAP) reached $257 million for Q2 2025, outpacing the $225.4 million GAAP analyst estimate. GAAP net income of $5.6 million represented a major improvement over the $54.5 million GAAP net loss posted in Q2 2024. The number of loans originated jumped 159% year-over-year, and transaction volume in dollars reached $2.82 billion, up 154% year-over-year. The quarter showed notable progress in core metrics and product development, though management noted that margins could tighten as Upstart expands into more competitive market segments, and that Contribution Margin (non-GAAP) declined as the company increased its mix of prime and super prime borrowers in Q1 2025. Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report. Company Overview and Business Focus Upstart's business centers on using artificial intelligence to make more accurate credit decisions for unsecured and secured consumer loans. Its proprietary AI models analyze borrower risk and automate much of the loan approval process, removing many manual steps for banks and credit unions. The company's main products include AI-powered personal loans, auto loans, and home equity lines of credit. Recently, Upstart has been focused on improving model accuracy and automation efficiency. Partnerships with banks, credit unions, and private capital sources are crucial to scaling loan origination volume. Upstart's key success factors include maintaining strong AI model performance, diversifying funding sources, securing regulatory compliance, and adapting to changes in borrower credit quality or economic cycles. Growth into new products and market segments, especially prime and super-prime borrowers, is also a major strategic priority. Quarterly Highlights and Key Developments Upstart saw transaction volumes and loan originations grow at a rapid pace during Q2 2025. It originated 372,599 loans, more than doubling its count from Q2 2024. The total dollar amount of loans facilitated rose to $2.82 billion, a 154% year-over-year increase. The conversion rate -- the share of applicants who accept and complete a loan -- improved to 23.9%, up 8.7 percentage points year-over-year. AI-powered automation ran 92% of loan approvals end-to-end in Q2 2025, slightly above the prior year's 91%, reflecting continued improvements in efficiency and scalability. Personal loans remained the largest segment, but there was strong expansion in auto lending and home equity lines of credit (HELOCs). Auto loan originations built on the nearly fivefold year-over-year growth seen in Q1 2025. Instant approvals -- where borrowers get a decision immediately -- were achieved for some auto refinance products in Q1 2025, demonstrating widening AI capability. HELOCs expanded to cover 37 states and Washington, D.C. as of Q1 2025, extending Upstart's footprint to about 75% of the U.S. population. HELOC originations continued their rapid growth, following a 52% sequential jump in Q1 2025. Partnerships and distribution expansion were prominent, including the launch of a program with Walmart's OnePay fintech to reach new users. Upstart added more funding partners -- including institutional investor Fortress -- and expanded its banking and credit union base to over 100 partners. These steps aimed to build capital supply and broaden loan distribution. Management said over 50% of funding now comes from committed partnership agreements, reducing reliance on more volatile sources like securitizations. Profit metrics improved on several fronts, including GAAP net income, GAAP income from operations, contribution profit, and adjusted EBITDA. Contribution profit -- which subtracts variable costs from revenue -- rose 85% year-over-year, while the related contribution margin stayed steady at 58%. Adjusted EBITDA, a measure of operating cash profit, swung to $53.1 million from a negative $9.3 million, with Adjusted EBITDA margin improving to 21%. However, management did warn of pressure on take rates and aggregate margins as the company moves more into the competitive prime and super-prime lending markets, where per-loan profitability is lower but potential loan demand is much higher. There were no new one-time charges, large regulatory impacts, or material changes to dividend payouts in the period. Looking Forward: Guidance and Key Areas to Watch Management issued guidance for Q3 2025, targeting $280 million in total revenue, contribution margin at about 58%, GAAP net income of $9 million, and adjusted EBITDA of $56 million. The company raised its total revenue (GAAP) forecast for FY2025 to $1.055 billion. The full year 2025 guidance for adjusted EBITDA margin stands at 20%, and GAAP net income is expected to reach $35 million. The company said guidance for Q2 2025 and full-year 2025 assumes no improvement in the overall macroeconomic environment and excludes the effects of any major new partnerships, such as the Walmart/OnePay initiative. Going forward, investors may want to monitor trends in take rates and contribution margins (non-GAAP) as Upstart expands in the prime segment, as well as the pace of growth in newer products like auto and HELOCs. Capital needs and cash levels are important to track, with cash and equivalents recently falling as more loans are held on balance sheet. Key risks include changes in consumer credit performance, regulatory developments, and the effectiveness of new funding and distribution partnerships. Upstart does not currently pay a dividend. Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

Why Upstart Stock Soared 26% in July

Interest rates are coming down, and financial companies are performing well. Upstart Holdings (UPST 3.52%) stock jumped 26% in July, according to data provided by S&P Global Market Intelligence. The market is getting excited about it again as interest rates come down, and many financial stocks have been reporting robust growth. A better way to approve loans Upstart is a credit evaluation platform that uses artificial intelligence (AI) to approve more loans without adding risk to the lender. In theory, that's a great premise for a company, and Upstart caught investor attention early in its journey when it was reporting triple-digit growth. However, it's had a wild ride over the past few years as it cycles through different phases of the interest rate trends. Interest rates were near zero when it went public, leading to heightened lending activity and ease in approving loans. Rising interest rates put a stop to that, and revenue plummeted, along with the stock price. It looks like it's finally stabilizing again as interest rates come down. However, it's in a much better place today having been through the challenge and incorporating those years of data into its algorithms. It's back in growth mode, and investors are getting excited again. If it can come through on its claims of helping banks and financial institutions approve more loans, which is one way they make money, it may have an edge over legacy credit evaluation platforms that it says deny access to funds to many people who aren't a credit risk. Upstart released strong earnings results this week. Revenue more than doubled to $257 million in the 2025 second quarter, and transaction volume was up 159%. Operating income was $4.5 million, up from a $55.5 million loss last year, and net income was $5.6 million, from a $54.5 million loss last year. A stock that looks compelling today When Upstart was doing well in the past, its valuation became astronomical. At the current price, Upstart stock trades at a forward one-year P/E ratio of 27, which is reasonable considering its performance and opportunities. Upstart stock fell after the report, probably because loans held on the company's balance sheet are on the rise. That's been a red flag for investors in the past, and the market didn't take this well. Upstart stock may not be the best candidate for the risk-averse investor, but it may be past rock bottom, and it has excellent long-term potential.

Upstart Sees Surge in Demand for Auto and Small Dollar Loans | PYMNTS.com

Company materials revealed that revenues surged 102% year on year in the second quarter, while the platform's loan originations topped more than 372,590 in the period, up 159%. The data showed that as loans topped $2.6 billion, personal loan originations were up 143%. The company also noted that borrowers with super-prime FICO scores represented 26% of originations. Upstart's management noted on the call that other business lines such as auto-related loans also saw growth. The platform originated more than 4,600 auto loans in the second quarter, up more than 6x from a year ago and up 87% sequentially, equating to $114 million in volume. Home loans were up by 9x year on year to $68 million in originations, jumping 67% sequentially. Management has guided to $1 billion in revenues for the current quarter, which is in line with Wall Street consensus. During a conference call with analysts, CEO Dave Girouard said that with respect to the auto business, "the dealership adoption right now is like nothing we've seen in the past, and the volume of loan requests and closed agreements from our dealer partners is on a steep climb. This is a recent phenomenon." Girouard said that the newer businesses in home and auto attracted almost 20% of new borrowers to the platform, including the small dollar loan product, which grew 40% sequentially, crossing more than $100 million in originations in the latest period. "Our growth last quarter was not a result of dramatic macro improvements or Fed rate decreases," he said. "Our growth was primarily on the back of model improvements." Upstart's models, he added, powered by AI, helped drive conversion rates from 19% in Q1 to 24% in Q2. The improvements were tied to Model 22, which the company launched in early May. "Our funding partnerships have been both durable and scalable, allowing us to grow rapidly while delivering the target returns our partners expect," Girouard said. "With respect to banks and credit unions, we expect to reach a new all time high for monthly available funding in Q3, surpassing our prior peak from early 2022. The funding markets continue to improve as the year progresses, particularly since the Liberation Day fears in early April subsided." Added Girouard: "We're building the 'always on everything store' for credit, aiming to persistently underwrite 100% of Americans." Upstart Co-founder and CTO Paul Gu said on the call that the model upgrades had translated into "numerous improvements and optimizations to how customers can pay, how much they pay, and when they pay. As a result, year-over-year population adjusted delinquency rates are down 20%, and raw delinquency rates are down 32%." CFO Sanjay Datta said in remarks on the call that "the broader macro has been idling in regards to its impact on credit trends, registering as neither a significant headwind nor tailwind over the past months." Fee-based revenues were up 84%, he said, and was 15% better than guidance. "Average loan size of approximately $7,570 was 15% lower than the prior quarter as model advancements drove higher approval rates in smaller loan amounts," Datta said. Management also noted on the call that the shift to small dollar loan products also has moved to drive average loan sizes down. Asked on the call about the competitive nature of the markets, Girouard said that the improved funding environment "does tend to bring more competitors into the space. So unsurprisingly, it's a fairly competitive game these days ... We're very focused on having best offers both at super prime level and at our core business as well. We're confident in our ability to grow our market share and keep our strength in those markets." As for the state of the consumer, Datta said: "We've been consistent in saying that the American consumer in aggregate is probably overspending relative to the income levels that we're earning and that's been true for a while now. If that balance improves, we would expect that credit trends would improve as well."