Shares of Upstart (UPST 7.67%), the AI-based loan origination platform, were moving lower after the company topped revenue estimates in its first-quarter earnings report, but margins narrowed, showing it had to spend more to drive that growth.
Upstart's business model makes it easy for the company to deliver revenue growth as it can make more loans to bring in more fees, but it's key for the model to deliver growth on the bottom line.
As of 1:23 p.m. ET, the stock was down 8.1% on the news.
Image source: Getty Images.
What happened with Upstart
The business continued to expand at a rapid pace in the first quarter, with originations up 61% to $3.4 billion and transaction volume up 77% to 425,356 loans, driving total revenue up by 44% to $308.2 million, which topped estimates at $303 million.
However, sales and marketing spending nearly doubled to $104.4 million, and its generally accepted accounting principles (GAAP) operating loss actually widened from $4.5 million to $7.5 million. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin also narrowed from 20% to 13%, and its GAAP loss per share widened from $0.03 to $0.07.
Management explained the increase in marketing spend as "investment to optimize digital channels and support new product growth."
The company also expects EBITDA margin acceleration over the remainder of the year as it forecast slower expense growth.
NASDAQ: UPST
Key Data Points
Can Upstart bounce back?
Looking ahead, the company maintained its revenue guidance for the full year at $1.4 billion, up 34.5% from 2025, and adjusted EBITDA of $294 million, up 28%.
That's a solid growth rate and shows that margins should improve later in the year. However, given the weak Q1 results, today's sell-off is understandable.
