Upstart Holdings (NASDAQ: UPST) posted better-than-expected first-quarter 2025 earnings, but its share price declined sharply after the announcement, as investors focused on concerns about shrinking margins and ongoing market volatility despite robust growth.
Earnings Beat and Revenue Growth
Upstart reported adjusted earnings per share (EPS) of $0.30 for the first quarter, comfortably beating the analyst estimate of $0.17. Total revenue reached $213 million, a 67% increase from the previous year and above the consensus forecast of $201.13 million. The company’s revenue from fees increased 34% year-over-year, reaching $185 million[2][3].
Stock Reaction and Margin Concerns
Despite surpassing expectations, Upstart’s stock dropped 17.14% in after-hours trading following the earnings release. The decline was triggered by concerns about margin compression, as the company’s contribution margin fell by 6 percentage points to 55%. Analysts noted that the stock remains highly volatile, with a beta of 2.39, and currently trades above its fair value. Personal loan originations grew 83% year-over-year, but remained flat sequentially, contributing to mixed investor sentiment[2][3].
Business Metrics and Strategic Updates
Upstart’s platform loan transaction volume surged 102% compared to the prior year, reflecting continued demand for its AI-driven lending products. Management highlighted the introduction of new AI techniques to improve its lending model and raised full-year revenue guidance to $1.01 billion. The company also indicated it expects to receive $564 million in undiscounted cash over the duration of existing agreements[3][5].
Analysis
Upstart’s first-quarter results demonstrated considerable growth in both earnings and revenue, significantly outperforming analyst forecasts. However, the sharp decline in contribution margin raised immediate questions about the company’s profitability trajectory. Experts pointed to the company’s high stock volatility and premium valuation as factors that amplified the negative market response. Management’s focus on AI innovation and increased guidance suggests confidence in future growth, but investors appear cautious about the sustainability of margins given the current rate environment and competitive lending landscape[3].
Outlook
Upstart’s raised guidance and ongoing product innovation indicate management’s optimism for the year. However, the market remains wary until the company can demonstrate stabilization or improvement in margins. Analysts will likely watch upcoming quarters for evidence that Upstart can translate top-line growth into improved profitability, particularly as macroeconomic conditions and credit cycles evolve.
