Pagaya's Strong Q3 Performance Bolsters Growth Thesis, Yet Leverage and Funding Risks Loom Large

What happened

Pagaya Technologies reported robust Q3 2025 results, with network volume up 19% year-over-year and revenue growing 36% year-over-year, as highlighted in a recent Seeking Alpha article that touts improved attractiveness after a valuation reset. Adjusted EBITDA margins expanded by 900 basis points to 30.6%, signaling enhanced operational efficiency and profitability in its AI-driven lending platform. According to the DeepValue master report, this aligns with a shift to positive GAAP net income in 2025, reinforcing the potential of its scalable, API-embedded underwriting network. However, the report underscores critical risks, including high leverage with net debt/EBITDA at 7.3x, heavy dependence on volatile ABS funding markets, and concentrated partner exposure that could disrupt growth. Despite a 129% stock surge over 12 months, Pagaya still trades approximately 24% below intrinsic value per DCF, suggesting upside if current unit economics prove sustainable amid these headwinds.

Implication

Pagaya's strong Q3 results validate its ability to drive revenue growth and expand margins, potentially supporting further stock appreciation as the AI platform scales. However, the high debt load and reliance on ABS funding expose the company to credit cycle swings and refinancing risks that could quickly erode profitability. Partner concentration adds operational fragility, where loss of key relationships might sharply reduce network volumes and fee revenue. Regulatory pressures on AI underwriting and BNPL segments remain a persistent threat that could increase compliance costs or limit business models. For investors comfortable with cyclicality, the current undervaluation offers a speculative opportunity, but diligent monitoring of earnings quality, funding access, and credit performance is crucial to mitigate downside.

Thesis delta

The Seeking Alpha article reinforces the DeepValue report's potential buy thesis by demonstrating continued execution on growth and margins, which supports the view of a maturing, profitable business. However, this does not shift the core investment thesis, as the fundamental risks of high leverage, funding dependence, and partner concentration remain unchanged and critical to monitor. Investors should view the positive performance as confirmation of near-term momentum but require sustained profitability and deleveraging for a more robust buy case.