Upstart NASDAQ: UPST is aiming to grow its lending business and improve profitability in 2027, even as higher interest rates and pressure on consumers weigh on its outlook, Co-Founder and CEO Paul Gu said at a Citi Equity Research event.
Gu said the company’s third-quarter contribution profit rose 48% year over year, reaching a record for the second consecutive quarter. The growth came despite a nine-point average headwind from the Upstart Macro Index, or UMI, he said.
Citi analyst Pete Christiansen noted that Upstart recently lowered its full-year revenue and adjusted EBITDA guidance as macroeconomic conditions pressured balance sheet income. Gu said the company raised its guidance for fee revenue and its implied outlook for contribution profit, while acknowledging that the balance sheet remains particularly sensitive to macroeconomic changes.
Rates and balance sheet sensitivity
Gu described Upstart as a business with both strong company-specific growth drivers and significant exposure to the broader economy. He said fair-value measurements on the balance sheet are more sensitive to changing conditions than the core operating business because they reflect expectations about future performance, discounted to the present.
Asked about slower October originations relative to the third quarter, Gu pointed to market interest rates as the largest factor. Upstart generally reprices loans about once a month, he said, and increases in benchmark rates late in September passed through to October loan pricing.
Higher rates and a weaker consumer can push some borrowers above an applicable annual percentage rate limit, making them ineligible for approval, Gu said. He characterized that effect as a headwind rather than a permanent cap on growth, arguing that improvements in underwriting and marketing can bring some borrowers back within approval limits.
Secured products and underwriting
Upstart’s secured products turned contribution-positive a quarter ahead of the company’s year-end goal, Gu said. Christiansen cited an improvement in the secured contribution margin from roughly negative 35% to positive 17% in one quarter.
Gu attributed the progress to improvements across loan sales, deal economics and costs. He said Upstart plans to focus on growing secured products in 2027 after prioritizing their profitability in 2026.
Among those products, Gu said auto-secured personal loans are closely connected to Upstart’s existing personal loan business, while home equity lines of credit could require further investment in distribution partnerships. He said the company no longer offers its previous auto refinancing product, explaining that it lacked the scale to build demand for a product many consumers were not already seeking.
Gu identified contribution profit as the main measure he believes investors should watch to assess whether underwriting improvements are creating value. He also said the company spends substantial effort managing computing costs and customer-facing latency as its models become more complex.
Bank charter and 2027 priorities
Gu said Upstart’s pursuit of a bank charter is intended to help it operate efficiently across all 50 states through direct regulatory relationships. He emphasized that the company still intends for third parties to fund the vast majority of its originations, rather than tying growth to its own equity capital.
A charter could improve loan economics by reducing the number of intermediaries, Gu said, but he did not describe it as a fundamental change to the company’s profit and loss statement. Separately, he said reducing the equity capital used to support loan funding and co-investments is a major priority.
Looking to 2027, Gu said he wants Upstart to produce records across measures including originations, contribution profit, adjusted EBITDA and GAAP net income, surpassing results from 2021. He presented that as a goal by which he would like the company to be judged, rather than a formal forecast.
About Upstart (NASDAQ:UPST)
Upstart Holdings, Inc. operates an artificial intelligence–based lending marketplace that connects consumers seeking loans with banks and credit unions. Its platform uses machine-learning models and borrower data to help lending partners assess credit risk and make lending decisions. The company's offerings include personal loans and technology for auto lending, including auto retail and refinancing. Upstart was founded in 2012 by Dave Girouard, Paul Gu and Anna Counselman. Girouard serves as the company's chief executive officer.
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