Pagaya Reports 2025 Results, Cementing Profitability But Not De-risking the Story

What happened

Pagaya Technologies announced its fourth quarter and full-year 2025 financial results, likely confirming the trend of consecutive GAAP profitable quarters and adjusted EBITDA growth highlighted in the DeepValue report. This performance stems from improved FRLPC margins and operating leverage as the company shifts toward an investor-products model, reducing direct credit risk. However, a critical look beyond the promotional language reveals persistent high leverage with net debt/EBITDA around 7.3x and substantial on-balance-sheet risk-retention obligations totaling $888 million. The results reinforce the narrative of a profitability turnaround, but they do not eliminate vulnerabilities to volatile credit cycles and ABS funding spreads that could quickly erode earnings. Thus, while execution appears solid, the equity already prices in optimistic assumptions, leaving little margin for error.

Implication

The 2025 results validate the base-case scenario of steady growth and profitability, supporting a potential upside to ~$22 if execution continues, but they do not justify immediate buying given elevated valuation multiples and leverage. Critical risks remain, including sensitivity to ABS deal pricing and credit impairments, which could compress margins and trigger downside toward the bear-case $13. Investors must closely monitor upcoming 2026 guidance and the cadence of new securitization transactions for signs of funding durability or stress. A better risk-reward entry would be near the attractive level of $15, aligning with the DeepValue report's recommendation to await confirmation of margin resilience and deleveraging. Until such conditions materialize, holding off on new positions avoids overpaying for gains that remain fragile amid cyclical headwinds.

Thesis delta

The 2025 results confirm the profitability inflection and operational momentum central to the DeepValue thesis, slightly bolstering confidence in the base-case outcome. However, no fundamental shift in the investment call is warranted, as the key risks—high leverage, reliance on benign credit conditions, and crowded sentiment—persist unchanged. The thesis remains to wait for either a price pullback or additional quarters of clean earnings to improve risk-adjusted returns.