Pagaya Technologies (PGY) continues to leverage its lending roots while deftly employing artificial intelligence and data science, connecting lenders with consumers globally. Pagaya is the top personal loan ABS issuer in the U.S.. It recently announced the successful closing of two major deals, underscoring the robust demand for its AI-enabled consumer credit assets. The company continues to demonstrate robust financial health, beating top-and-bottom-line expectations for the third quarter. Despite some growing pains, the company continues evolving and expanding its business model, paving the path toward ongoing growth and potential upside for the stock.
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Pagaya’s Unique Approach Proves Successful
Pagaya Technologies is a fintech firm that focuses on the lending market. Its unique approach leverages cutting-edge technology, data science, and proprietary artificial intelligence to innovate loan offerings and facilitate customer acquisition. The key to Pagaya’s offerings lies in its proprietary AI technology and software solutions, which fundamentally enhance the ability of its partners to originate loans and other assets. Its network essentially serves as a bridge between lenders and consumers. Its diverse partnerships span from fast-growing fintech companies to traditional banks and financial institutions and extend to auto finance and residential real estate service providers.
The company recently announced the successful completion of two significant transactions, PAID 2024-10 and RPM 2024-3, collectively worth $1 billion. This marks Pagaya’s fourth AAA-rated personal loan ABS transaction and its debut AA-rated auto ABS transaction, indicating significant progress for the company.
The deal was heavily oversubscribed, indicating robust investor interest in Pagaya’s AI-enabled consumer credit assets. Since 2018, the company has successfully raised over $25.2 billion in 62 ABS transactions, reinforcing its position as the top personal loan ABS issuer in the U.S.
Pagaya’s Recent Financial Results
The company recently released its Q3 financial results, exceeding expectations. Revenue of $258 million marked a 21.8% year-over-year increase and beat analysts’ projections by $4.85 million. This was predominantly due to a 24% increase in revenue from fees, network volume growth of 11% year-over-year to reach $2.4 billion, 15% personal loan network volume growth, and a 67% point-of-sale network volume increase.
Adjusted EBITDA was at an all-time high of $56 million, marking a growth of $28 million year-over-year, while adjusted net income, excluding non-cash items, grew by $19 million over the same period the previous year to $33 million. However, a net loss of $67 million was recorded due to non-cash items such as fair value adjustments and share-based compensation expenses. The non-GAAP EPS of $0.44 surpassed consensus predictions by $0.17
To de-risk the balance sheet and reduce interest expense, the company undertook several key financial moves in the quarter, including raising a $160 million exchangeable note, increasing its term loan by $70 million, and selling around $100 million in balance sheet securities. The generated funds are scheduled to be applied to repay high-cost debt. The intended effect of these moves is to solidify the company’s balance sheet, enhance liquidity access via the release of high-quality collateral and spare cash, and lower annual interest expenses by roughly $30 million. The company plans to finalize these transactions by the end of the year.
Management has issued guidance for the full year 2024. The network volume is anticipated to lie between $9.5 billion and $9.7 billion. Total revenue and other income are projected to range from $1.01 billion to $1.025 billion. Furthermore, the adjusted EBITDA is expected to be between $195 million and $205 million.
What Is the Price Target for PGY Stock?
The stock has been extremely volatile (beta 3.20). It bounced around and eventually fell 34% year-to-date. It trades near the bottom of its 52-week price range of $8.20 – $20.50 and shows mixed technical signals on the price momentum of the shares. With a P/S ratio of 0.76x, it trades at a discount to the Information Technology sector, where the average P/S ratio is 3.23x.
Analysts following the company have been constructive on PGY stock. For example, Canaccord analyst Joseph Vafi, a five-star analyst according to Tipranks’ ratings, recently reiterated a Buy rating on the shares while lowering the price target from $32 to $25, noting the company continues to progress every quarter in evolving its business model and expanding its customer base. However, it continues to experience some growing pains.
Six analysts recommend Pagaya Technologies as a Strong Buy. The average price target for PGY stock is $21.67, representing a potential upside of 98.26% from current levels.
Final Perspective on PGY
Through the power of artificial intelligence and data science, Pagaya Technologies continues to connect lenders with consumers worldwide, solidifying its position as the top personal loan ABS issuer in the U.S. With the successful closing of two major deals and a robust interest in its AI-powered consumer credit assets, the company has impressively outperformed top-and-bottom-line expectations for the third financial quarter. Despite some initial growth challenges, the company continues to evolve and expand its business model, promising continued growth and potential long-term upside for investors.
