Upstart (NASDAQ:UPST) Beats Expectations in Strong Q2, Stock Jumps 14.1%

Adam Hejl /
2021/08/10 4:23 pm EDT
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AI lending platform Upstart (NASDAQ:UPST) reported Q2 FY2021 results topping analyst expectations, with revenue up 1,018% year on year to $193.9 million. Upstart made a GAAP profit of $37.2 million, improving on its loss of $6.19 million, in the same quarter last year.

Is now the time to buy Upstart? Access our full analysis of the earnings results here, it's free.

Upstart (UPST) Q2 FY2021 Highlights:

  • Revenue: $193.9 million vs analyst estimates of $157.7 million (22.9% beat)
  • EPS (non-GAAP): $0.62 vs analyst estimates of $0.25 (149% beat)
  • Revenue guidance for Q3 2021 is $210 million at the midpoint, above analyst estimates of $161.6 million
  • The company lifted revenue guidance for the full year, from $600 million to $750 million at the midpoint, a 25% increase
  • Free cash flow of $89.2 million, up 110% from previous quarter
  • Gross Margin (GAAP): 87.5%, up from 85.7% previous quarter

“Our second quarter results continue to show why Upstart has the potential to be among the world’s largest and most impactful FinTechs,” said Dave Girouard, CEO of Upstart.

Founded in 2012, Upstart (NASDAQ:UPST) is an AI-powered lending platform that helps banks better evaluate the risk of lending money to a person and provide loans to more customers.

There is a significant number of people who still aren't able to access financial products and services because they either don't fit the exact brackets banks are trying to fit them in or because they just didn't seem to be lucrative enough customers. Whether it is lending, banking or brokerages, financial technology is changing that. It is bringing in the ability to serve customers at scale and low cost at the same time, democratizing access to important services for unrepresented families and consumers.

Sales Growth

As you can see below, Upstart's revenue growth has been incredible over the last year, growing from quarterly revenue of $17.3 million, to $193.9 million.

Upstart Total Revenue

This was another standout quarter with the revenue up incredible 1,018% year on year. On top of that, revenue increased $71.5 million quarter on quarter, a very strong improvement on the $34.5 million increase in Q1 2021, and a sign of re-acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 69.1% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Upstart's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 87.5% in Q2.

Upstart Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.87 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a great gross margin, that allows companies like Upstart to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Upstart's Q2 Results

Sporting a market capitalisation of $10.5 billion, more than $506.2 million in cash and with positive free cash flow over the last twelve months, we're confident that Upstart has the resources it needs to pursue a high growth business strategy.

We were impressed by how strongly Upstart outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 14.1% on the results and currently trades at $154.87 per share.

Upstart may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our full report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.