Upstart Holdings, Inc. (UPST)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 delivered strong profitability with GAAP net income of $31.8M and diluted EPS of $0.23; adjusted diluted EPS was $0.52, reflecting robust net interest income and disciplined fixed costs .
• Revenue was $277.1M, up 71% YoY and 8% QoQ; EPS beat S&P Global consensus ($0.52 vs $0.42*), while revenue came in slightly below consensus ($277.1M vs $279.6M*) .
• Guidance mix-shift: FY 2025 total revenue lowered to $1.035B (from $1.055B), but GAAP net income raised to ~$50M and adjusted EBITDA margin raised to ~22%; Q4 revenue guided to ~$288M with contribution margin ~53% .
• Funding catalysts: new $1.5B forward-flow with Castlelake and Pathward bank partnership strengthen loan funding breadth and lender roster, supporting growth across cycles .

What Went Well and What Went Wrong

What Went Well

• Profitability and margin expansion: Adjusted EBITDA rose to $71.2M (26% margin) and GAAP net income reached $31.8M; CFO noted outperformance on net interest income and reduced fixed costs driving EPS .
• Demand and product expansion: Applications rose 30% QoQ; newer products (auto, home, small-dollar) accounted for ~12% of originations and ~22% of new borrowers; auto retail rooftops more than doubled QoQ and auto retail volume grew >70% sequentially .
• Funding strength: “100% retention” of private credit partners; oversubscribed ABS (30 investors, seven first-timers); seven new bank/credit union partners and record monthly available funding in Q3 .

Quotes:

• “Our AI platform is performing exactly as designed, rapidly adapting to evolving macro signals while delivering strong results.” — Dave Girouard .
• “We now have 10 active [private credit] partners… Upstart has 100% retention of all private credit partners to date.” — Dave Girouard .
• “Adjusted EBITDA was roughly $71 million, also correspondingly ahead of expectation.” — Sanjay Datta .

What Went Wrong

• Conversion rate decline: Models tightened on elevated macro signals (UMI), reducing approvals and raising rates; conversion fell from 23.9% in Q2 to 20.6% in Q3, modestly pressuring acquisition/onboarding unit costs .
• Transaction fees shortfall vs internal plan: Revenue from fees ~$259M was 6% below internal expectations, largely offset by stronger net interest income ($19M) .
• Mix and loan sizes: Average loan size fell ~12% QoQ to ~$6,670 due to borrower request behavior, model caution on sizes, and mix shift to smaller products/grades .

Financial Results

Notes:

• QoQ: Revenue +8% as stated by CFO; conversion decline explains fee revenue underperformance, offset by higher net interest income .
• YoY: Revenue +71% and originations +80% per press release .

Segment Breakdown (Revenue from Fees, net)

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Q3 GAAP net income grew by a factor of six over the prior quarter… consumer demand grew rapidly, with more than two million applications submitted in Q3.” — Dave Girouard .
• “Improvements… to our calibration methodology are expected to cut unwanted… conversion changes by about 50%.” — Paul Gu .
• “Q3 GAAP net income was approximately positive $32 million… reflecting outperformance on net interest income, reduced fixed costs, and a $7.2 million gain on our convertible debt repurchase.” — Sanjay Datta .
• “We now have 10 active [private credit] partners… ABS deal involved 30 investors, including seven first-timers.” — Dave Girouard .

Q&A Highlights

• Conversion rate drivers: Dominated by model conservatism—fewer approvals, higher coupons, smaller approved amounts; management expects lower calibration-driven volatility going forward .
• Auto credit and market noise: No direct impact from sector fraud headlines; rigorous dealer underwriting processes; timelines lengthened due to heightened diligence, not reduced appetite .
• Segment mix and competition: Elevated UMI in prime (720–750) relative to sub-660; superprime not a decline story (rates adjust slightly); competition is healthy in prime .
• Repayment speeds: Broad-based increase suggests improving consumer health; near-term reduces interest income, so models raise coupons accordingly .
• HELOC economics: Take rates expected “roughly half” personal loans, but on much larger average loan sizes (~$55–$60k), supporting attractive unit economics .

Estimates Context

Values with asterisks are retrieved from S&P Global.

Key Takeaways for Investors

• EPS beat driven by strong net interest income and fixed expense discipline; revenue slightly below consensus due to model conservatism impacting conversion .
• Funding tailwinds (Castlelake $1.5B forward-flow; new Pathward partnership) and oversubscribed ABS deal de-risk loan funding across cycles—positive for execution and growth capacity .
• Guidance quality improved: FY 2025 GAAP net income and adjusted EBITDA margin raised despite lower fee revenue; Q4 guide implies continued profitability at lower contribution margin (53%) .
• Product flywheel building: Auto retail expanding rapidly; HELOC automation progressing (instant valuations, multimodal AI); small-dollar instant funding launched—supports broader TAM and repeat borrower economics .
• Near-term trading lens: Expect focus on EPS beat vs revenue miss, conversion normalization, and FY guidance raise on profitability; funding announcements are incremental positive catalysts.
• Medium-term thesis: Upstart’s AI calibration improvements and growing institutional/bank capital should support sustainable growth while maintaining credit performance discipline—positioning for an “amazing 2026” per management .
• Watch items: Conversion rate trajectory and loan size mix; repayment speed impacts on net interest income; execution timing on third-party funding for R&D-evolved products .