Optimistic Outlook Following Q2 Earnings
Citi’s recent upgrade of Upstart Holdings (NASDAQ:UPST) to Neutral/High Risk from Sell/High Risk is a testament to the positive trends observed in the lending platform’s Q2 performance. The quarter showcased a range of encouraging dynamics that have caught the attention of analysts.
Strengthened Metrics and Growth Projections
Among the key highlights were an increasing conversion ratio, a gradual reduction in the macroeconomic impact on credit losses, an improved fee revenue outlook for the second half of the year, significant funding already under contract, and the return of “at will” partners, as noted by Citi analyst Peter Christiansen.
Positive Loan Metrics and Revenue Growth
Upstart (UPST) surpassed expectations in Q2, reporting 143K loans, which exceeded both Citi’s estimates and the consensus. The conversion rate of 15% outperformed projections, while the company’s fee revenue of $131M fell slightly below expectations. Christiansen has adjusted his 2025 fee revenue growth estimate to 6% based on an improved conversion ratio assumption of 16%, leading to a projected ~30% year-over-year production growth.
Caution Amid Positive Signs
While acknowledging the company’s positive performance, Christiansen also expressed a note of caution, citing the importance of sustainability in trends and the need for clearer signals in the consumer finance sector and economic indicators before adopting a more bullish stance. However, he highlighted the current challenge of justifying a downside narrative given the overall positive momentum.
Market Response and Ratings Comparison
Following the news, Upstart (UPST) experienced a significant surge of 24% in premarket trading on Wednesday. The decision to assign a Neutral rating contrasts with Sell ratings from SA Quant and Wall Street, as well as a Buy rating from the average SA Analyst, indicating varying opinions in the market regarding the company’s performance and future prospects.
