In Spite of Improving Full Year Forecast, Upstart Tumbles in Second Quarter

Shares of Upstart Holdings Inc. dropped sharply in after-hours trading on Tuesday after the artificial intelligence-based lending platform gave a disappointing forecast for its second-quarter performance, projecting both a loss and revenue figures below Wall Street’s expectations.

‍

Upstart, which trades under the ticker UPST, warned that it expects a net loss of about $10 million for the second quarter, slightly worse than analysts’ predictions. The company also said it anticipates revenue of roughly $225 million, falling short of the $226.2 million estimate from analysts surveyed by FactSet. These results come as investors and analysts have been paying close attention to the company’s efforts to improve its bottom line, particularly in a tough environment shaped by elevated interest rates.

‍

Despite the weaker short-term outlook, Upstart offered a more positive full-year picture. It signaled that its path toward profitability had brightened slightly and reported a sharp increase in loan originations during the first quarter.

‍

Upstart’s business model relies on using AI technology to assess borrowers and help match them with banks and financial institutions willing to extend loans. While the company’s tools are designed to help improve lending decisions and expand credit access, its operations are still heavily influenced by broader economic forces like interest rates and consumer demand for loans.

‍

After the company released its quarterly update, shares slid about 16% in after-hours trading on Tuesday. However, it’s worth noting that Upstart’s stock has been highly volatile around earnings announcements and remains up more than 110% over the past year. Much of that rally stems from investor optimism earlier, particularly after Upstart came close to returning to GAAP profitability — that is, profit measured under generally accepted accounting principles — during the fourth quarter of last year.

‍

The company last reported a full-year GAAP profit in 2021, but analysts have suggested that sustained improvements in this area could open the door for Upstart to attract larger, more institutional investors. A Mizuho analyst recently pointed out that better GAAP profitability could help bring in a new wave of significant investors.

‍

Still, the company has faced meaningful headwinds, especially as the Federal Reserve’s high interest rate policies have weighed on borrowing activity. Many consumers have been struggling to keep up with bills, debt payments, and rising living expenses, leading to uncertainty around the demand for new loans — something central to Upstart’s growth.

‍

Looking at the full-year outlook, Upstart now expects to generate around $1.01 billion in revenue, slightly above its February forecast of “approximately $1 billion.” Additionally, the company said it now expects to report positive GAAP net income in the second half of 2025 and for the full calendar year. This is an upgrade from its earlier expectation, which had called for at least breakeven results.

‍

Upstart also delivered some solid figures for the first quarter. The company originated 240,706 loans, which marks a 102% surge compared to the same period last year. Revenue came in at $213 million, a 67% increase year over year and comfortably above the $201.3 million analysts had anticipated, according to FactSet.

‍

On an adjusted basis, Upstart reported earnings of 30 cents per share, beating Wall Street’s estimate of 17 cents per share. On a GAAP basis, the company reported a loss of $2.4 million for the quarter, a dramatic improvement from the $64.6 million loss it posted a year earlier.

‍

These results suggest that while Upstart is still navigating a challenging lending environment, it is managing to make meaningful strides in improving its operational efficiency and narrowing its losses. The sharp rise in loan originations indicates that despite economic pressures, demand for its platform remains strong, and the company is succeeding in scaling its operations.

‍

Overall, investors seem to be weighing the short-term challenges against the longer-term potential. The drop in the stock price after hours reflects concerns about the near-term revenue miss and second-quarter loss, but the fact that Upstart’s shares have more than doubled over the past year points to underlying optimism about the company’s ability to rebound and continue growing.

‍

As the company moves through the rest of the year, much will depend on how effectively it navigates the tricky interest rate landscape, manages borrower demand, and delivers on its promise to turn a full-year profit. For now, Wall Street will be watching closely to see whether Upstart can sustain its momentum, attract larger investors, and continue scaling its innovative AI-driven lending model.

‍