Upstart Holdings Down 6% in After Hours Following Q3 Earnings Miss

Upstart Holdings (UPST) reported its first earnings miss in five quarters for Q3, with adjusted EPS of $0.23 against an expected $0.43 and revenue of $277.11M falling short of the $285.22M estimate, leading to a more than 6% decline in after-hours trading. Despite robust year-over-year growth in revenue (71%) and loan originations (80%), alongside a return to GAAP profitability and significant Adjusted EBITDA expansion, the company experienced a notable deterioration in operating and free cash flow, which turned negative. Management expressed optimism regarding its AI platform's performance and provided Q4 revenue guidance of $288M, but the negative cash flow despite improved profitability presents a key concern for investors.

Analysis

Upstart Holdings (UPST) reported its first earnings miss in five quarters for Q3, with adjusted EPS of $0.23 significantly below the $0.43 consensus and revenue of $277.11M missing the $285.22M estimate. This double miss led to a more than 6% decline in UPST shares in after-hours trading, ending a streak of four consecutive beats.

Operationally, UPST demonstrated robust growth, with revenue climbing 71% year-over-year and loan originations surging 80% to $2.9 billion. The company returned to GAAP profitability with a net income of $31.81M and saw Adjusted EBITDA expand dramatically to $71.16M, achieving a 26% margin. However, this was contrasted by a significant deterioration in cash flow, with operating cash flow turning negative at -$256.28M and free cash flow at -$270.58M.

Management guided Q4 2025 revenue to approximately $288M and full-year 2025 revenue to $1.035B, maintaining an optimistic tone regarding its AI platform's performance and credit metrics. CEO Dave Girouard highlighted the platform's adaptability to macro signals without signaling demand concerns. The upcoming earnings call is critical for management to clarify the discrepancy between operational strength and negative cash flow.

Key Decisions for Investors

• Monitor management's explanation on the earnings call regarding the significant negative free cash flow despite improved profitability, as this is a key liquidity concern.
• Evaluate the sustainability of Upstart's revenue growth and AI model performance in light of the earnings miss and macroeconomic conditions.
• Consider adjusting position sizing or re-evaluating price targets given the immediate negative market reaction and mixed fundamental signals.