Key Points
- Q2 revenue was $128 million, topping management expectations.
- The company's GAAP net loss nearly doubled year over year and stands at $54.5 million.
- Advances in AI models improved the loan conversion rate from 9% to 15% year over year.
Tech-driven lending platform Upstart (UPST -7.78%)reported second-quarter earnings on Tuesday that indicated year-over-year declines in several metrics leading to negative earnings even on an adjusted basis.
Upstart's Q2 revenue of $128 million was just above management's guidance, but it was down 6% year over year. Upstart's GAAP net loss of $54.5 million came in much better than management's projected $75 million loss, but it was still nearly double Q2 2023's loss.
| Metric | Q2 2024 | Management's Guidance | Q2 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $128 million | $125 million | $135.7 million | (6%) |
| Revenue from fees | $131 million | $135 million | $143.7 million | (9%) |
| Net Interest Income (Loss) | ($5 million) | ($10 million) | ($7.9 million) | N/A |
| GAAP Net Income (Loss) | ($54.5 million) | ($75 million) | ($28.2 million) | N/A |
| Adjusted Net Income (Loss) | ($15.3 million) | ($36 million) | $5.4 million | N/A |
| Adjusted EBITDA | ($9.3 million) | ($25 million) | $10.9 million | N/A |
Source: Upstart. Note: Expectations based on management's guidance provided on May 7, 2024. YOY = Year over year. GAAP = Generally accepted accounting principles.
Company Overview
is a fintech company focused on leveraging artificial intelligence (AI) to streamline the lending process. It uses AI models to assess credit risk more accurately than traditional methods. revolves around personal loans, automotive loans, and new products like home equity lines of credit (HELOC). The company’s technology platform and partnerships with over 100 banks and institutional investors form the backbone of its operations.
Quarterly Review
In Q2 2024, GAAP net income loss worsened significantly to $54.5 million compared to $28.2 million the prior year. Adjusted net income loss nearly tripled year over year, going from a loss of $5.4 million to $15.3 million. Adjusted EBITDA stood at negative $9.3 million compared to a gain of $10.9 million in 2023's Q2. If there is a positive here, management was forecasting even bigger losses than what was reported.
However, there were within the business metrics. Upstart's loan conversion rate improved to 15% in Q2 2024 from 9% in Q2 2023. The performance gains in AI were a major focus, reflecting ongoing investment and refinement.
The company originated 143,900 loans totaling $1.1 billion in Q2, showing a small decrease of 6% from the previous year's quarter. This slight dip indicates a stabilization in core business operations. Upstart also highlighted the importance of its expanding home equity line of credit (HELOC) products, which are poised to diversify its income streams.
Funding partnerships remained robust, though details on the exact breakdown of loans purchased by institutional investors weren't provided. However, revitalized funding sources were emphasized, suggesting solid relationships with partners. This funding supply is crucial for sustaining loan origination and fostering growth.
Outlook and Future Guidance
Looking ahead to Q3 2024, . The company expects total revenue to reach approximately $150 million. Revenue from fees is projected at $155 million, indicating a sequential increase. GAAP net income loss is anticipated to be around $49 million, suggesting further improvement from the $54.5 million loss reported in Q2.
Upstart management forecasts an adjusted net income loss of $14 million for Q3, closely aligning with Q2's results. The contribution margin is expected to increase slightly to 57% from 56% in Q2. Adjusted EBITDA guidance is set at negative $5 million, reflecting a strategic aim towards positive EBITDA by the fourth quarter, paving the way toward regaining profitability.
Investors should monitor several aspects in the forthcoming quarters. These include further improvements in AI model performance, stabilization, and growth in loan origination volumes, as well as strengthening funding partnerships.
