Pagaya's Growth Claims Face Scrutiny Amid High Leverage and Funding Risks

What happened

A Seeking Alpha article paints Pagaya Technologies as a buy with triple-digit upside, citing robust AI-powered lending and strong partner expansion, including eight new partners and raised FY 2025 GAAP net income guidance. It highlights Q3 2025 revenue of $350.1M and improving profitability as evidence of sustainable growth in its B2B2C model. However, DeepValue's analysis reveals that despite a recent 129% stock run and positive GAAP net income, Pagaya faces significant risks, including high leverage with net debt/EBITDA at ~7.3x and heavy dependence on ABS funding markets. Earnings remain volatile due to substantial stock-based compensation and non-GAAP adjustments, while partner concentration and credit-cycle exposure threaten long-term stability. Although a DCF model suggests ~24% upside to intrinsic value, investor confidence hinges on navigating these risks amid regulatory scrutiny and macroeconomic sensitivity.

Implication

Pagaya's reported revenue growth and guidance raise signal operational momentum, but the ~7.3x net debt/EBITDA ratio and ABS reliance create refinancing vulnerabilities if funding costs increase. The stock's appreciation reflects improved metrics, yet sustainable returns depend on maintaining FRLPC margins around 5% and diversifying partner bases to reduce concentration risk. Non-GAAP earnings adjustments and heavy stock-based compensation obscure true profitability, necessitating a focus on GAAP net income trends for clarity. Regulatory pressures on BNPL and AI underwriting could impose additional compliance burdens or limit business models, adding to operational uncertainty. Therefore, while offering upside for risk-tolerant investors, Pagaya demands continuous oversight of leverage, funding access, and credit performance to mitigate potential downside.

Thesis delta

The Seeking Alpha article reinforces Pagaya's growth narrative with new partners and raised guidance, but it does not address the fundamental risks highlighted in the DeepValue report, such as high leverage and earnings volatility. Investors should not let optimistic projections overshadow the need for deleveraging and stable funding access. The core thesis remains a high-risk, potential buy contingent on continued execution and effective risk management through credit cycles.