AI lending platform Upstart (NASDAQ: UPST) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 70.9% year on year to $277.1 million. Next quarter’s revenue guidance of $288 million underwhelmed, coming in 6.1% below analysts’ estimates. Its non-GAAP profit of $0.52 per share was 23.4% above analysts’ consensus estimates.

Is now the time to buy UPST? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Upstart’s third quarter was marked by solid year-over-year growth but drew a negative market reaction, as revenue modestly missed Wall Street’s expectations. Management attributed the results to conservative adjustments within its AI-driven credit decision models, which responded to macroeconomic signals by tightening loan approvals and raising interest rates. CEO David Girouard noted, “Our models responded to macroeconomic signals they observed by moderately reducing approvals and increasing interest rates,” leading to a lower conversion rate despite robust demand. The quarter also saw continued progress in new products, particularly in auto and home lending, yet the impact of model conservatism weighed on transaction volumes.

Looking ahead, Upstart’s outlook is shaped by its intention to maintain disciplined credit performance and further automation across its product lines. Management expects recent enhancements to model calibration to reduce volatility in conversion rates, though lingering conservatism will affect the coming quarter. CFO Sanjay Datta commented that while credit signals are starting to improve, “the improvements in UMIs are materializing… we are conservative and want to watch them bake.” The company is investing in technology to drive growth in auto, home, and small-dollar loans, with leadership expressing optimism that these initiatives will position Upstart for stronger performance as market conditions stabilize.

Key Insights from Management’s Remarks

Management emphasized that the quarter’s performance was primarily influenced by their AI model’s conservative stance, which reduced loan approvals and conversion rates. They also highlighted advancements in automation and new product momentum.

• AI model conservatism: Upstart’s AI-driven credit models responded to macroeconomic signals by tightening approval criteria and increasing interest rates, leading to a lower conversion rate. Management characterized this as a deliberate, risk-sensitive adjustment rather than a structural issue, stressing that “precise and rapid tuning to changing economic conditions is a foundational capability of Upstart AI.”

• Robust application growth: Despite tighter model thresholds, consumer demand surged, with over two million loan applications submitted—the highest in more than three years. However, this demand did not fully translate into transaction volume due to elevated model conservatism.

• Product diversification momentum: Newer offerings, including auto, home, and small-dollar loans, grew substantially. Auto retail originations more than doubled quarter-over-quarter, and home product automation accelerated, with instant approvals for home equity lines of credit (HELOCs) reaching 20% in October. These segments now account for a notable share of originations and new borrowers.

• Advances in automation and AI: The company made significant progress on technological initiatives, such as reducing loan pricing latency by 30% and launching a machine learning model to optimize take rates. In home lending, the use of multimodal AI (which processes both text and images) is automating document review, improving efficiency in less-digitized products.

• Strengthened funding capacity: Upstart expanded its network of bank, credit union, and institutional funding partners, achieving a new high in available funding and retaining all private credit partners. The company also completed a well-received securitization, demonstrating investor confidence in its credit performance.

Drivers of Future Performance

Management expects ongoing model calibration, product automation, and cautious underwriting to drive revenue and margin trends in the coming quarter, while new product adoption and funding partnerships remain key priorities.

• Model calibration and credit discipline: Upstart plans to continue fine-tuning its AI models to adapt quickly to macroeconomic changes. Recent improvements are expected to cut conversion rate volatility by about half, but leadership acknowledges that lingering conservatism will impact near-term volumes. CFO Sanjay Datta emphasized that “prudence in underwriting” remains the North Star for the business.

• Scaling new products: The company is prioritizing automation and efficiency in auto, home, and small-dollar loan products, aiming to shift more originations off its balance sheet and onto third-party funding. Management believes these segments will become significant contributors as new funding arrangements are finalized and product maturity advances.

• External funding and competitive dynamics: Management noted ample third-party capital for unsecured lending, but highlighted that recent industry headlines and diligence requirements have lengthened deal cycles for new product funding. While competition in the super prime segment is intense, Upstart’s focus on credit accuracy and model-driven pricing is intended to preserve profitability and long-term growth.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory analyst team will closely monitor (1) the pace at which Upstart onboards third-party funding partners for its new products, (2) the trajectory of conversion rates and whether recent model calibration improvements translate into more stable approval trends, and (3) continued automation in auto and home loan originations. Developments in competitive lending markets and Upstart’s ability to sustain credit performance will also be critical signposts.

Upstart currently trades at $40.35, down from $46.31 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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