UPST Q3 Earnings Preview: Should You Buy the Stock Now or Wait?

Upstart (UPST) is projected to report Q3 revenues of approximately $280 million, aligning with the Zacks Consensus Estimate of $281.02 million, which represents a 73.3% year-over-year increase, alongside projected adjusted net income of $44 million. While the AI lending platform has a history of exceeding earnings expectations, a proprietary model does not predict a beat this quarter, and the stock carries a Zacks Rank #3 (Hold) due to concerns over credit-sensitive borrowers, market liquidity, and its current "overvalued" status. Despite management's confidence in rebounding origination demand and new funding channels driving 2025 revenue growth, the uncertain credit environment suggests a cautious "hold" approach rather than aggressive trading.

Analysis

Upstart (UPST) management has guided for third-quarter revenues of $280 million and adjusted net income of $44 million, closely aligning with the Zacks Consensus Estimate of $281.02 million, which implies a substantial 73.3% year-over-year increase. For 2025, management projects revenues of $1.055 billion and GAAP net income of $35 million, exceeding the Zacks Consensus Estimate of $963.4 million, which still represents a 51.36% year-over-year jump. The company boasts a strong earnings surprise history, having beaten the Zacks Consensus Estimate in the past four quarters by an average of 192.09%.

Operational drivers include rebounding origination demand, improved funding channels, and the effectiveness of its latest underwriting model, Model 22, which increased conversion rates from 19.1% to 23.9%. This has supported expanded lending activity and the maintenance of a 58% contribution margin. Despite these positive operational indicators, Zacks' proprietary model does not conclusively predict an earnings beat for the upcoming quarter, with Upstart holding a 0.00% Earnings ESP and a Zacks Rank #3 (Hold).

Shares of UPST have underperformed, declining 8.6% over the past six months, contrasting with significant gains by peers like LendingClub (LC) and SoFi (SOFI). The stock is currently considered overvalued, indicated by a Value Score of F and a forward 12-month Price/Sales (P/S) ratio of 3.70x, which is at a premium to the industry average of 3.28x. Key risks include exposure to credit-sensitive borrowers, dependence on market liquidity, and recent weaknesses in credit trends, particularly in used car loans, contributing to its volatile growth path.

Key Decisions for Investors

• Monitor Q3 earnings results closely for confirmation of management's revenue and profitability guidance, paying particular attention to contribution margins and growth in new verticals.
• Exercise caution given the current 'overvalued' valuation (P/S of 3.70x vs. industry 3.28x) and the Zacks model's non-prediction of an earnings beat, despite the company's historical outperformance.
• Assess the ongoing impact of credit-sensitive borrower exposure and market liquidity on Upstart's future growth trajectory, especially in light of recent credit trend weaknesses.