To The Moon

$Upstart Holdings, Inc.(UPST)$ dropped 12% after the company missed Q2 revenue guidance.

Financial Highlights

Revenue: $213.4M, beating the $201.3M consensus (+6.0%).

However, this was a 2.57% decline from $219M in the prior quarter, though still up from $127.8M a year ago.

EPS: $0.33, surpassing the estimate of $0.17 (+94.1%), and rising from $0.26 in Q4 2024.

Adjusted EBITDA: $42.6M, above the $27.0M consensus (+57.8%), and up from $38.8M in Q4.

Q2 Guidance Miss: Expect Q2 revenue at ~$225M vs. $226M consensus.

GAAP net income (loss) for Q2: -10 million USD.

Investment Highlights

1. AI has accelerated loan approvals, continuing the profitability growth trend from Q4.

Revenue fell quarter-over-quarter by 2.57%, but profitability metrics remained strong, continuing the growth momentum from Q4.

AI adoption is accelerating loan approvals. Notably, 92% of loans in Q1 were fully automated—a new record. The introduction of embeddings into the core personal loan underwriting model improved credit decision accuracy.

2. Contribution margin fell to 55%, slightly below guidance (Q4 was 61%). Q2 guidance also remains at 55%.

Management attributed the decline to lower take rates in the super prime borrower segment. While super prime loans improve overall credit quality, they generate lower platform fees, thereby reducing margins.

In the current uncertain macro environment, the company’s conservative strategy seems more prudent.

CEO highlighted significant growth in the Home and Auto loan segments, but core personal loan originations were flat sequentially, suggesting possible weakened consumer demand among mid-credit-score borrowers, who are Upstart’s main customer base.

Conclusion

While the Q1 report shows strong profitability and operational progress, the weaker-than-expected Q2 guidance triggered a 12% drop in the stock price.

Despite the revenue beat, a slight quarter-over-quarter decline, combined with high valuation and a volatile macro backdrop, meant that even good news wasn’t enough to avoid a selloff—especially for companies that aren’t yet profitable.

Management remains optimistic about reaching profitability later this year. If market risk appetite improves, Upstart could bounce back sharply.