PGY reported earnings yesterday pre-market and it in was a great report in my opinion. In the earnings call, management was the most optimistic and enthusiastic as I have ever heard them, as they are usually pretty pragmatic. Notably, the CEO stated that Pagaya is now ready to enter a growth phase, after spending the last year or two focusing on working with partners to dial in products, and profitability. This is the most confident I’ve been in my top-tier position in Pagaya, and I will likely ensure they are my #1 holding when I do an overall reallocation by the end of this week.
Here are some highlights:
Revenue growth of 36% YoY, up from 30% and the highest since Q3 2022
Adjusted EBITDA up 91% YoY
Net Income growth of 35% QoQ despite negative impacts from one-off costs in the quarter
Network Volume up 8% QoQ, primarily driven by the newer Auto and POS verticals
Raised annual guidance for the 3rd straight quarter, although the raise represents a lowered growth rate in Q4. This could be prudence/sandbagging.
They are super cheap again, with P/E of 9.2, EV/Sales of 1.2 and EV/EBITDA of 4.2
Commentary:
Shifting to Product Growth phase of the business for the next 18 months, which can be described as cross-selling/land and expand
More partners have been adding additional products such as affiliate and direct marketing products. These new/expanded products now represent 50% of revenue, with the other half being the additional loan volume they provide their partners (“decline monetization”)
They have 8 new partners in their onboarding queue which already reaches their goals for the next two years. Onboarding is now moving faster as they have learnings from existing partners across products
POS and Auto volumes are growing rapidly, now representing 32% of total volume, up from 9% in the year-ago quarter, which builds a more resilient, “through-the-cycle” business model.
Almost all analysts congratulated them on an excellent quarter, and the tone of their questions has shifted notably from skeptical to more excited, over the last 4 quarters.
I also follow them and they had a good report this quarter. Their P/S multiple is a confusing metric because the net revenue is less production/pass thru costs and their net revenue (FRLPC) is about 1/3rd their declared revenue and based on that the P/S would be about 3x but still much lower to UPST whihc at its nadir at 4x .
Pagaya is more of a B2B player so the stability of platform fee gives them a SAAS based favour and without inherent risks on their balance sheet except the small window where they have to repackge and sell of the new loans to other market players AND HENCE THEY HOLD A LOT OF CASH ON THEI BALANCE SHEET. The company does not hold consumer loans directly but collects cash from its institutional partners and investors through securitizations OF THE LOANS THEY ACQUIRE AND PACKAGE. The risk WINDOW IS until loans are matched or transferred via ABS or forward flow agreements to others.
They should get rerated sometime soon given the growth and EBITDA leverage that is starting to show. tHEI EBITDA increased 91% while revenue grew by 36% THIS last quarter .
I have been in $PGY since last November (have done very well!). I have marginally considered it a growth stock as it has been able to get above a 30% growth rate Y/Y. Their recent quarter was 36% y/y for instance. I do have a concern though.
What did you guys make of guidance with only $358m on the top end guide? That is terrible sequential growth from Q3-Q4 in that it would be 2% growth of revenue at the top end. They don’t tend to blow away guidance either as the last 4 reports have had 2 that didn’t beat top end guidance and the other 2 did just slightly.
I took this investment because I did think it was undervalued (mostly a value and not growth play). But I am wondering if they will continue growing at more than 20-30%.
@moselmeister I also noticed the QoQ guide looked a little soft. I’m not sure if that’s sandbagging, seasonality, or what, as it certainly contradicts both the tone and the actual content of the conference call. And I agree with your assessment of this being more of decent growth at a great value…up to this point. The last 18 months they have been setting the stage for acceleration, and on the call they seemed to suggest this would be the case for the next couple of years. So for now, I’m looking past the single quarter guide.