Upstart (NASDAQ:UPST) Reports Strong Q3 But Stock Drops 19%

Kayode Omotosho /
2021/11/09 4:25 pm EST
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AI lending platform Upstart (NASDAQ:UPST) announced better-than-expected results in the Q3 FY2021 quarter, with revenue up 249% year on year to $228.4 million. Guidance for next quarter's revenue was surprisingly good, being $260 million at the midpoint, 14.2% above what analysts were expecting. Upstart made a GAAP profit of $29.1 million, improving on its profit of $9.66 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) Q3 FY2021 Highlights:

  • Revenue: $228.4 million vs analyst estimates of $214.8 million (6.31% beat)
  • EPS (non-GAAP): $0.60 vs analyst estimates of $0.33 (80.3% beat)
  • Revenue guidance for Q4 2021 is $260 million at the midpoint, above analyst estimates of $227.6 million
  • Free cash flow of $38.3 million, down 57% from previous quarter
  • Gross Margin (GAAP): 84.6%, down from 85.6% same quarter last year

“Since Upstart's IPO a year ago, we've more than tripled our revenue, tripled our profits, tripled the number of banks and credit unions on our platform, and tripled the number of auto dealerships we serve,” said Dave Girouard co-founder and CEO of Upstart.

Founded by the former head of Google's enterprise business Dave Girouard, 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 $65.3 million, to $228.4 million.

Upstart Total Revenue

This was another standout quarter with the revenue up a splendid 249% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $34.5 million in Q3, compared to $71.5 million in Q2 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 74% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Upstart. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.


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, licenses, technical support and other necessary running expenses was at 84.6% in Q3.

Upstart Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.84 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still 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 Q3 Results

Sporting a market capitalization of $26 billion, more than $1.04 billion 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 the exceptional revenue growth Upstart delivered this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Zooming out, we think this impressive quarter should have shareholders feeling very positive. But the market was likely expecting more and the company is down 19% on the results and currently trades at $253.66 per share.

Market might not have reacted to the earnings positively, does that present an opportunity to buy Upstart 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 actionable report which you can read here, it's free.

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