-$2.82
$19.62
bear -$2.82
base $10.04
bull $19.62
margin of safety $4.50
market price* $17.23
Business condition attached to the margin of safety
Credit-related losses on the loans and securities the company retains stay at or below roughly 2025 levels for at least two more reporting periods, and the 2029 exchangeable notes and 2030 senior notes are reduced or refinanced without a sharp rise in cost.
Pagaya runs an AI-driven network that connects lenders (its Partners) with institutional investors who fund consumer loans. It earns fees when loans are originated and funded: AI integration fees from the lenders, capital-markets fees when loans are packaged into securitizations or sold through forward-flow agreements, and management and servicing fees on assets held in those structures. It also keeps a slice of the risk itself, buying about $632 million of retained positions in its own securitizations in 2025. Network Volume was $8.3 billion in 2023, $9.7 billion in 2024 and $10.5 billion in 2025. Revenue was $1.30 billion in 2025 against $1.03 billion in 2024, and no single customer was 10% or more of 2025 revenue (one was in 2023 and 2024). How we measured earnings. We start from operating cash flow, remove the swings in receivables and other working capital, then subtract stock compensation ($54 million in 2025) and the maintenance part of equipment and software spending (about $9 million). One judgement matters a great deal: losses on the loans and securities the company retains ($109 million in 2025, $408 million in 2024, $135 million in 2023) are non-cash in the year they are booked, but they are a recurring cost of doing this business, so we do not add them back. On that basis earnings were about $140 million in 2025 ($1.68 per share), against losses of about $417 million in 2024 and $194 million in 2023. Because the company carries about $1 billion of debt, we value the business before its lenders (adding back the $92 million of cash interest paid, for about $231 million of 2025 business cash flow) and then subtract what it owes. Starting point. We use 2025 as the earnings level, not the earlier years, because it is the first year after the 2024 headcount cuts and after the fee-economics improvement with certain Partners. The first half of 2026 supports it (net income $70 million against $25 million a year earlier; operating cash flow $118 million against $92 million). We normalized retained-loan losses to the three-year median of $135 million rather than 2025's lower $109 million, giving a base earnings level of about $206 million a year before interest. Last year's earnings swung from a $417 million loss to a $140 million profit, which is not a meaningful growth rate; our first-year growth is 0%. We give no credit for continued volume growth, higher fees per loan, new loan types or lower costs, because none is contracted and the company has only one profitable full year. Base case: about $10.04 per share. The business holds about $206 million a year for ten years (funding channels across securitizations, forward-flow and pass-through deals are in place, and Partner revenue is less concentrated than before), then fades to zero over the following ten years because nothing named and evidenced extends it further. That is worth about $1.94 billion. The company owes about $0.96 billion: $486 million of 8.875% senior notes due August 2030 (about $47 million added because they cost well above 6%), $160 million of 6.125% exchangeable notes due 2029, $253 million of secured borrowing, $61 million of preferred stock ranking ahead of common, $55 million belonging to outside owners of consolidated funding vehicles, less roughly $100 million of cash beyond operating needs. The difference is about $0.98 billion, or $10.04 across about 97 million diluted shares. Bear case: about negative $2.82 per share. Credit losses on retained loans run near $220 million for two years (2024 saw a $412 million credit-related impairment), and part of the 2025 fee improvement reverses, cutting business cash flow to about $30 million a year, then about $100 million a year, before fading. The business is then worth about $0.81 billion. Debt is about $1.09 billion, because the 2029 and 2030 notes, which the company itself has bought back at about 87 cents on the dollar, would be refinanced at roughly 12%. The company appears to owe more than it is worth, by roughly $0.27 billion. Five investors supplied 46% of asset-backed funding in 2025, so a funding pullback is a real risk. Bull case: about $19.62 per share. 2025 economics hold with retained-loan losses staying near $109 million, and business cash flow grows from $231 million by 6% a year, slowing to 2%, roughly the pace of 2025 volume growth, before fading. The business is worth about $2.87 billion against $0.96 billion of debt, a difference of about $1.91 billion. What could prove this wrong. Credit losses could stay low (the first half of 2026 was stronger than we assumed) or return to 2024's level. Fee gains from certain Partners are not contracted and could reverse. Roughly $646 million of notes mature in 2029 and 2030. The company was in compliance with its debt covenants at year-end 2025. We could not fully reconcile the divergence between $945 million of retained loans and securities on the balance sheet and their modest income, and the number of shares has risen from 83 million to about 97 million since 2025.