Upstart Holdings Reports Strong Q2 Growth Driven by AI Model Improvements, Not Macroeconomic Factors
SAN FRANCISCO, CA – August 8, 2023 – Upstart Holdings, Inc. (NASDAQ: UPST) today announced robust second-quarter results, demonstrating significant growth fueled by advancements in its AI-powered lending models, rather then improvements in the broader economic climate.The company reported attracting nearly 20% of new borrowers through its newer home and auto loan products, alongside a 40% sequential increase in its small-dollar loan portfolio, which surpassed $100 million in originations during the quarter.
This performance marks a turning point for Upstart, which has navigated a challenging lending environment. CEO Dave Girouard emphasized that the growth wasn’t tied to external factors like Federal Reserve rate cuts or macroeconomic improvements.instead, it was “primarily on the back of model improvements.” Specifically,the launch of Model 22 in early May drove conversion rates up from 19% in Q1 to 24% in Q2.
Building an “Always-On Everything Store” for Credit
Upstart is positioning itself as a thorough credit solutions provider, aiming to “persistently underwrite 100% of Americans,” according to Girouard. The company’s durable and scalable funding partnerships with banks and credit unions are key to this ambition.Upstart anticipates reaching a new all-time high in monthly available funding in the third quarter,exceeding levels seen in early 2022. The funding markets have shown improvement since concerns related to regional bank instability in April, often referred to as “Liberation Day” fears, subsided.
Delinquency Rates Fall as Model Upgrades Take Hold
The benefits of the model upgrades extend beyond increased approval rates. Upstart Co-founder and CTO Paul gu reported a 20% year-over-year decrease in population-adjusted delinquency rates and a 32% drop in raw delinquency rates. These improvements are attributed to optimizations in customer payment options, amounts, and timing.
financial Highlights & Future Outlook
CFO Sanjay Datta highlighted an 84% increase in fee-based revenues, exceeding guidance by 15%. The average loan size decreased by 15% to approximately $7,570, a result of both model advancements leading to higher approval rates for smaller loans and a strategic shift towards small-dollar loan products.
Datta also noted that macroeconomic conditions have remained relatively stable, presenting neither a significant headwind nor tailwind to credit trends. While acknowledging that the American consumer is currently spending beyond income levels, he indicated that an improvement in this balance would likely led to positive credit trends.
Competitive Landscape & Strategy
Girouard acknowledged a more competitive lending environment as funding improves, but expressed confidence in Upstart’s ability to maintain and grow market share through competitive offers across both super-prime and core business segments. The company remains focused on delivering strong returns to its funding partners while expanding access to credit for a wider range of consumers.