What we think about Upstart (UPST)
Upstart in Three Words: Disrupting Credit Issuance
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Background
Upstart Holdings is a company that has developed and operates an artificial intelligence (AI) lending platform that connects consumers with banks and credit unions.
The company views the FICO score-based credit decision-making process as fundamentally limited. Instead, it is plowing ahead with its approach of making decisions based on a wide range of data points, guided by sophisticated machine learning algorithms.
But Upstart’s data and machine learning aren’t just limited to lending decisions. It is used for target fee optimization, income fraud, acquisition targeting, loan stacking, prepayment prediction, identity fraud, and time-delimited default prediction. These models are provided to banks issuing Upstart-powered loans as cloud applications. As you already know, Upstart doesn’t issue the loans, the banks do, and they do so according to their own conditions but using Upstart’s models. Today, consumers discover these Upstart-powered loans either via Upstart.com or via a bank partner’s website. Upstart uses various marketing tools (e.g., mail-in, social media, affiliates) to acquire traffic to its website. Over time, as more banks sign up to Upstart, one can imagine a shift toward bank-driven loans, although currently, Upstart.com is doing the heavy lifting in terms of customer acquisition.
Upstart makes money through fees paid by its bank partners. For loans that originate because of reference via Upstart.com, banks pay a referral fee; this is similar to how mortgage brokers, for instance, get paid. In addition, for all loans, Upstart charges a platform fee.
This is effectively a usage-based model. Upstart’s earnings are impacted by the loan origination volume happening because of its models. The company facilitates liquidity for these loans via a network of institutional investors who purchase whole loans, pass-through certificates, and asset-backed securities.
80% of loans have historically been purchased by institutional investors, with only around 16% retained by the originating banks. The company also funds a small number of loans (4%) via its balance sheet, typically when launching a new program or significantly altering its models. Even for loans sold to investors, Upstart continues to service the loan and thus has complete visibility into the repayment process of its loans, further adding valuable data points for model refinements.
Conviction Rating Changes
Upstart was named one of 7investing's highest-conviction ideas in October 2025.
*Upstart's conviction rating was upgraded in September 2025.
*Upstart was named one of 7investing's highest-conviction ideas in May 2025.
Due to its exposure to a cyclical industry, Upstart Holding's revenues have been accelerating in recent quarters.
Its year-over-year sales have improved from:
- a (6%) decline in Q2 2024, to
- 20% growth in Q3 2024, to
- 56% growth in Q4 2024, and now to
- 67% growth in Q1 2025
That means the company's growth is... Join 7investing to get access to this section
Recent Company Updates
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October 17, 2025
Even after reporting two straight quarters of fantastic results, it still feels like Upstart can't get any love.
The AI-powered loan originator reported reported in Q1 that its transaction volume had increased 102% to 240 thousand, its revenue was up 67% to $213 million, and its conversion rate had improved 5 percentage points to 19.1%. Somehow it did even better in Q2, reporting 159% growth in transactions, 102% growth in revenue, and a conversion rate of 23.9%. The company's growth rate accelerated for the fourth straight quarter, it converted more than 20% of revenue into EBITDA, it beat Wall Street's expectations, and it once again raised its full year 2025 guidance.
The market was rewarding Upstart's business performance during the summer and its stock peaked at $82 in August. Yet the company's second quarter report curiously triggered a drastic selloff that the stock has yet to recover from.
Perhaps there are concerns about Upstart using its own balance sheet to fund its market expansion. It recently issued $600 million of convertible debt to fund its "R&D loans" as its prepares to enter the auto and home origination markets.
This provides a Catch-22 dilemma. Upstart...
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February 11, 2025
Fourth Quarter 2024 Financial Highlights
Upstart's fourth quarter results just completely knocked it out of the park:
- Total Revenue was $219 million, up 56% year-over-year ("YoY") and up 35% quarter-over-quarter ("QoQ"). Total fee revenue was $199 million, an increase of 30% YoY, and up 19% QoQ.
- Transaction Volume and Conversion Rate: 245,663 loans were originated, totaling $2.1 billion, up 68% YoY and up 33% QoQ. Our Conversion Rate was 19.3%, up from 11.6% in Q4 2023.
- Income (Loss) from Operations was ($4.8) million, up from ($47.5) million in Q4 2023.
- Net Income (Loss) and EPS: GAAP net income (loss) was ($2.8) million, up from ($42.4) million in Q4 2023. Adjusted net income (loss) was $29.9 million, up from ($9.7) million in Q4 2023.
- Accordingly, GAAP diluted earnings per share was ($0.03), and diluted adjusted earnings per share was $0.26 based on the weighted-average common shares outstanding during the quarter.
- Contribution Profit was $122 million in the fourth quarter of 2024, up 28% YoY, with a Contribution Margin of 61% compared to 63% in Q4 2023.
- Adjusted EBITDA was $38.8 million, up from $0.6 million in the same quarter of the prior year. Adjusted EBITDA Margin was 18% of total revenue, up from 0% in Q4 2023.