The stock market loves a good comeback story, and Upstart Holdings (UPST) is writing its own. Over the past six months, shares of this artificial intelligence (AI)-powered lending platform have soared by 181%, driven by strong financial results and tailwinds from the U.S. Fed’s interest rate cuts. In comparison, the broader S&P 500 Index ($SPX) managed a 15.1% increase over the same period. 

This impressive performance is further bolstered by the company’s solid third-quarter (Q3) financial results, which exceeded market expectations. UPST stock is up approximately 15% in pre-market trading, driven by solid lending volumes and a return to positive adjusted EBITDA ahead of schedule.

With strong financials and an upbeat outlook, Upstart appears well-positioned to maintain its momentum. Let’s delve deeper into its Q3 performance and the key factors supporting its growth trajectory.

A Stellar Q3 Performance

Upstart delivered a stellar third quarter, with revenue climbing 20% year-over-year and 27% sequentially to $162 million, surpassing Wall Street’s forecast of $149 million. Loan volume hit 188,000 transactions, up 64% YoY and 31% sequentially, signaling robust demand. Impressively, the company added 118,000 new borrowers, with an average loan size increasing to $8,400, compared to $7,700 in the prior quarter.

Efficiency gains were a highlight, with the company’s contribution margin rising to 61%, a 3% sequential increase, and 4% above management’s guidance. This was driven by higher conversion rates on personal loans and enhanced operational efficiency through automation. Furthermore, the company’s tight expense management contributed to better-than-expected results.

Moreover, Upstart achieved positive adjusted EBITDA of $1.4 million, beating analysts’ expectations for a $5.9 million loss - and doing so a quarter ahead of schedule.

Although Upstart reported an adjusted loss per share of $0.06, this was a significant improvement over the consensus estimate of a $0.15 loss per share.

Why Upstart Could Keep Winning

Several factors point to continued growth for Upstart:

• Interest Rate Cuts - The Federal Reserve’s recent rate cuts, including its initial 0.5% reduction and another 25 basis points cut yesterday, are a boon for lending platforms. Lower rates make borrowing more attractive, which fuels loan volume growth. Upstart’s Q3 was already its best for personal loan origination in two years, and further rate reductions could keep the momentum going.
• Diversified Product Growth - Upstart has expanded beyond personal loans. Its auto loan originations rose 46% sequentially to $26.5 million, and the company continues to deepen partnerships with automakers, which will support future growth. Meanwhile, its home equity line of credit (HELOC) business is scaling rapidly, with zero defaults across 600+ loans to date. Moreover, loan originations more than doubled on a sequential basis. These diversifications strengthen Upstart’s long-term prospects.
• Tech-Driven Efficiency - Automation and machine learning are core to Upstart’s operations. The company is optimizing its loan servicing and collections processes to cut loss rates and improve borrower approval rates. This focus not only enhances margins, but also builds a competitive edge.
• Strong Funding Partnerships - Upstart’s ability to fund its loans is critical. Its recent $2 billion partnership with Blue Owl Capital (OWL) reflects strong confidence from institutional investors. Further, in Q3, over half of its loan funding came from long-term committed partnerships, ensuring a steady capital flow.

What’s Next for Upstart?

Looking ahead, Upstart forecasts Q4 revenue of $180 million, above analysts’ estimates of $162.3 million. The company also expects $5 million in adjusted EBITDA, signaling continued profitability improvements.

With its strong financials, improved balance sheet, steady capital flow, and favorable macroeconomic conditions, Upstart seems well-positioned to sustain its rally.

The Bottom Line on UPST Stock

Upstart’s remarkable comeback reflects its resilience and strategic execution. While the stock’s rapid ascent raises questions about valuation and keeps some analysts cautious, reflected through a “Hold” consensus rating, its growth story is far from over. 

For investors with a higher risk appetite, Upstart could offer compelling upside, especially as it remains well-positioned to continue to outperform expectations in the quarters ahead.

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