I have been wanting to introduce Pagaya to this board for a few days but I haven’t found the time to do a proper write-up. I am submitting something that is too hasty so that I can share a link with you all to a Seeking Alpha write up of Pagaya that is quite thorough before it goes behind a paywall (hopefully it hasn’t done so already).
I have taken a 17% stake in Pagaya at an average price of $1.12.
My short term thesis is that this is an AI play that very few growth investors have heard of, but which has a similar business model to Upstart, is performing much better (in terms of revenue growth–I cannot speak to performance of its loans–both UPST and PGY say their loans perform well but I am not sophisticated enough to assess their claims) and is significantly cheaper with a small market cap. (I still have a stake in Upstart–more on that later.)
Pagaya grew revenues 57% in 2022 vs 2021 while Upstart revenues showed a slight decline over the same period. It has shown fairly steady growth each quarter, despite a dip in Q4 for 2022, which was announced in February.
Pagaya has a $779M market cap and trades at 0.6 times sales and 1.13 times book.
Upstart has a $2.27B market cap and trades at 1.87 times sales and 2.33 times book
Pagaya has several important partnerships, though I think the most important one to me is with SoFi, in which I also have a stake. I think SoFi understands credit. How do I know this? I don’t really, but I take great comfort in the fact that Harvey Schwartz, once a top contender to be CEO of Goldman Sachs, who is now CEO of Carlyle, and who has a strong credit background, sits on SoFI’s Board of Directors. I don’t think a company like that would use a credit-focused partner like Pagaya unless it thought Pagaya really knew what it was doing.
My medium to long term thesis is a belief I have stated here in the past, which is that the FICO score is a total dinosaur. Some company is going to figure out how to do better. I have no idea if it will be Upstart or Pagaya, but as far as I can tell they are the leading contenders at the moment. Given the TAM, the shares of both companies can go up A LOT before proving they have won the race to replace FICO.
I hope I have done a decent enough job of introducing this to at least keep myself from being banned from commenting again! I look forward to hearing your thoughts.
One other thing I will mention about Pagaya is something I have seen on Twitter but am not sure how to verify. It is that Tiger Global has a very large stake and has been selling shares, which has kept the price from taking off despite the AI mania. The usual method I have of tracking insider transactions shows no transactions at all in Pagaya, though that may be because it is an Israeli company.