Why Upstart Stock Was Skyrocketing Today

Shares of Upstart (NASDAQ: UPST) were surging today after the struggling consumer lending platform posted better-than-expected results in the second quarter and offered upbeat guidance for the third quarter, showing that the business may finally be returning to growth.

As of 12:51 p.m. ET, the stock was up 48.6%.

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Upstart bounces back

Upstart, which uses an AI-based model to screen prospective lenders to better assess creditworthiness and default risk, has struggled with the high-interest-rate environment like most lending platforms.

Revenue fell 6% in the second quarter to $128 million and was flat sequentially, but that topped estimates at $124.5 million. The company originated 143,900 loans in the second quarter worth $1.1 billion, down 6% from the quarter a year ago, though conversion on rate requests improved from 9% in the quarter a year ago to 15%.

Contribution margin, which estimates the company's profit margin after variable expenses, was down from 67% to 58%, and adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ) loss of $9.3 million, compared to a profit of $11 million in the quarter a year ago. An increase in marketing expenses along with falling revenue were among the reasons for the decline in margins.

It also reported an adjusted per-share loss of $0.17, down from a profit of $0.06 per share but better than the consensus of a per-share loss of $0.39.

CEO Dave Girouard said, "The guidance we released today demonstrates that we're on track toward resuming our role as the fintech known for high growth and healthy margins."

Is Upstart turning around?

Upstart's guidance signaled that it was on the right track as it called for revenue of $150 million in the third quarter, up 11% from the quarter a year ago and better than the consensus at $135.4 million. It sees an adjusted EBITDA loss of $5 million but called for positive adjusted EBITDA in the fourth quarter.

Upstart's update alone doesn't seem to justify a 50% jump in the stock, but Upstart has always been highly volatile, and there's a lot of leverage in its business model. In addition to the expected improvements in the second half, investors also seem to be betting that the company will benefit from lower interest rates.

Jeremy Bowman has positions in Upstart. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy .