According to a recent report, the Global Digital Lending Platform Market is estimated to grow from $7.14 billion in 2020 to $27.07 billion by 2028 at a CAGR of 18%. San Mateo-based Upstart (Nasdaq: UPST), a leading player in the market, recently announced stellar second-quarter results.
Upstart’s Financials
Upstart reported Q2 revenues of $194 million, up a massive 1,018% and surpassing the market’s estimates of $158 million. Non GAAP EPS was $0.62, compared with the market estimate of $0.25 for the quarter.
Among key metrics, during the quarter, its bank partners originated 286,864 loans, totaling $2.8 billion, across its platform, recording a growth of 1,605% over the year. Conversion on rate requests was 24%, compared with 9% a year ago.
For the third quarter, Upstart forecast revenue of $205-$215 million. For the fiscal year, it forecast revenues of around $750 million, significantly higher than the earlier estimated revenues of $600 million.
Upstart’s Massive Growth
During the quarter, Upstart continued to drive separation between its AI-powered platform and the traditional lending systems. It eliminated a rules-based constraint in its model that handled situations related to the size of the loan requested. The deployment of more powerful algorithms and growth in training data helps its models handle issues with more precision. The improved algorithm has resulted in a boost in approval rates and a more accurate system overall. It also recalibrated its acquisition models to harmonize them with the funnel improvements. Its models for digital and offline acquisition are now aligned to more recent funnel wins that are driving their growth and are now targeting applicants that would have earlier been ignored or not prioritized.
It also recalibrated to broader bank partner eligibility criteria, enabling Upstart to market to more consumers. During the quarter, it experienced a reduction in the cost of funding across the platform, thus offering better rates for consumers. This cost of funding improvement was driven by better bank offers on its platform, as well as a reduction in the yield required by the broader capital markets. Its bank partner network is also growing. It now has 25 banks and credit unions on its platform. Upstart also expanded its platform for Spanish speakers, becoming a first of its kind among digital lending platforms in the US.
Earlier this year, Upstart had released its auto refinance product in a single state; it is now available in 47 states, covering more than 95% of the US population. Upstart-powered banks have now originated more than 2,000 auto refinance loans in 40 different states. It now has its first five banks and credit unions signed up for auto lending on its platform as well. During the quarter, more than $1 billion in auto sales were reported on its automotive retail solution called Prodigy Software.
Upstart remains focused on consumer lending. Its products include personal loans to help consumers with credit card consolidation, debt consolidation, home improvement, medical bills, wedding planning, and moving locations. Last quarter, its acquisition of Prodigy Software helped its expansion into the auto loan space as well. Its AI model has proven that it is able to approve 26% more borrowers than the traditional model and yields 10% lower average APRs for approved loans.
Its stock is currently trading at $303.32 with a market capitalization of $23.6 billion. It was trading at a 52-week high of $308.78 last week. Upstart had raised $240 million from its IPO where it sold its stock at $20 apiece in December last year. The stock has had a meteoric rise since going public.
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