$EJFA - Pagaya Global, a differentiated AI underwriter and Asset Manager with hyper-growth and a long runway for growth, coming public via a SPAC merger.
Long thread, buckle up!
Long thread, buckle up!
What is Pagaya’s Mission?
Pagaya has the vision to empower its partners and customers to achieve better outcomes.
The mission is not that inspirational when framed this way, I believe it’s pretty simple and provides lots of opportunities for Pagaya to develop a lot of products
Pagaya has the vision to empower its partners and customers to achieve better outcomes.
The mission is not that inspirational when framed this way, I believe it’s pretty simple and provides lots of opportunities for Pagaya to develop a lot of products
What problem are they solving?
Current lenders use manual, time-consuming processes and bad experiences to lend to consumers.
Current lenders use manual, time-consuming processes and bad experiences to lend to consumers.
This is undergoing a change by newer lenders like SoFi - $SOFI, Upstart - $UPST, Affirm - $AFRM, etc to focus on building a great consumer relationship and experience and revolutionize the way consumers get access to credit.
But during this revolution, they have failed to revolutionize their underwriting systems and are still dependent on older systems and data.
The banks/lenders are using even older systems from decades ago.
The banks/lenders are using even older systems from decades ago.
What does Pagaya do?
Pagaya is a centralized AI and data network. They are building a leading artificial intelligence network to help partners to grow their business, and to serve their customers better.
Pagaya is a centralized AI and data network. They are building a leading artificial intelligence network to help partners to grow their business, and to serve their customers better.
The AI network is operated in different markets, in the credit card space, in personal loans, in auto loans, in housing, and in the future, even in insurance and mortgage.
This AI is basically the underwriting system that they use to price assets and manage risk.
This AI is basically the underwriting system that they use to price assets and manage risk.
How does Pagaya do this?
Pagaya’s ecosystem has 3 players:
- Consumer seeking credit
- Lending Marketplaces/Lenders
- An institution looking to invest in consumer loans
Pagaya’s ecosystem has 3 players:
- Consumer seeking credit
- Lending Marketplaces/Lenders
- An institution looking to invest in consumer loans
Consumer goes to different lenders, banks, fintechs etc, to ask for credit.
The lenders are connected to Pagaya with a simple API and when consumers apply for credit, pagaya gets their application through that API with all the data of that person.
The lenders are connected to Pagaya with a simple API and when consumers apply for credit, pagaya gets their application through that API with all the data of that person.
Then they are able to exactly/precisely predict who should get how much credit that person should get and they are more inclusive while doing this using their AI(they extend credit to people who have traditionally been excluded from this).
Then Pagaya takes this loan and makes it available to an institutional investor who wants to invest in this loan through Asset-Backed Securities.
So Pagaya sits at the center of these 3 parties and gets transaction fees from enabling this seamless end-to-end transaction.
So Pagaya sits at the center of these 3 parties and gets transaction fees from enabling this seamless end-to-end transaction.
Whats the outcome?
Using Pagaya results in a better outcome for their partners and their customers.
Partners are delighted that more customers are being in their ecosystems, and the customers are getting a much better outcome while they are fulfilling their needs or dreams.
Using Pagaya results in a better outcome for their partners and their customers.
Partners are delighted that more customers are being in their ecosystems, and the customers are getting a much better outcome while they are fulfilling their needs or dreams.
How is Pagaya used by their customers?
Their partners connect to Pagaya using an API plug-in that enables consumer applications to run through their AI in real-time, and Pagaya is able to approve and transact the applications automatically in real-time.
Their partners connect to Pagaya using an API plug-in that enables consumer applications to run through their AI in real-time, and Pagaya is able to approve and transact the applications automatically in real-time.
What is the scale of Pagaya's technology?
Pagaya has acquired more than 16 million training data points, which are 100% fully automated, while they are evaluating an application every second, and have managed already to evaluate more than 17 million applications.
Pagaya has acquired more than 16 million training data points, which are 100% fully automated, while they are evaluating an application every second, and have managed already to evaluate more than 17 million applications.
They had almost 200% of a network volume growth annualized in Q2 versus the last year while maintaining 300% of revenue growth in the same period.
The scale is very amazing, with about $4.7 billion annualized network volume in Q2 while creating $381 million annualized revenue
The scale is very amazing, with about $4.7 billion annualized network volume in Q2 while creating $381 million annualized revenue
What are Pagaya’s Products?
Pagaya started with personal loans and since then has added auto, credit card, Point of sale, and real estate loans, they have also expressed interest in insurance.
Pagaya started with personal loans and since then has added auto, credit card, Point of sale, and real estate loans, they have also expressed interest in insurance.
How does Pagaya make money?
Pagaya charges transaction fees to their partner’s lenders and institutions to enable the approval of applications and corresponding selling off these loans as securities to the institutional investors.
Pagaya charges transaction fees to their partner’s lenders and institutions to enable the approval of applications and corresponding selling off these loans as securities to the institutional investors.
Who are Pagaya’s Customers?
Some of the marketplace lenders that I could find that are using Pagaya are Upgrade, Marlette, Prosper, Cross River Bank, And LendingClub. And they recently announced A partnership with Sofi.
Some of the marketplace lenders that I could find that are using Pagaya are Upgrade, Marlette, Prosper, Cross River Bank, And LendingClub. And they recently announced A partnership with Sofi.
What is Pagaya’s Market Opportunity?
The TAM for their products runs into trillions.
But I would cap it to $50B and monitor for a long time.
I chose $50B as they are currently running $4.7B through their system and I feel a capped 10x TAM is a good measure(realistic).
The TAM for their products runs into trillions.
But I would cap it to $50B and monitor for a long time.
I chose $50B as they are currently running $4.7B through their system and I feel a capped 10x TAM is a good measure(realistic).
How have they executed to capture this opportunity?
Pagaya has enjoyed about 154% of CAGR just in the last three years.
They are now almost $2 billion of origination in the first half of 2021.
Pagaya has enjoyed about 154% of CAGR just in the last three years.
They are now almost $2 billion of origination in the first half of 2021.
Pagaya has been able to grow into new markets at an accelerated pace versus their previous entries in new markets.
So, for personal loans, the growth took them 36 months, or 3 years, to reach.
In auto, they are seeing much higher growth, and in real estate, even higher.
So, for personal loans, the growth took them 36 months, or 3 years, to reach.
In auto, they are seeing much higher growth, and in real estate, even higher.
For Pagaya’s partners, this is an excellent outcome.
They see 3x median increase in their partners’ volume, only after six months, and 6x of median increase in their partners’ volume when they are on Pagaya 12 months after.
This leads to a perfect retention rate(till now).
They see 3x median increase in their partners’ volume, only after six months, and 6x of median increase in their partners’ volume when they are on Pagaya 12 months after.
This leads to a perfect retention rate(till now).
What is Pagaya’s near-term opportunity?
The potential opportunity is over 60 U.S. banks with $50 billion-plus in assets each, and a combined of $18 trillion as industry assets.
The potential opportunity is over 60 U.S. banks with $50 billion-plus in assets each, and a combined of $18 trillion as industry assets.
What is Pagaya’s Competitive Advantage and why is it a durable long-term investment?
The deep competitive moat is the data science and the technology that are the foundation of Pagaya(the AI and the Scale).
The deep competitive moat is the data science and the technology that are the foundation of Pagaya(the AI and the Scale).
They have a world-class data scientist team and platform of 170 people that are focusing solely on research and development of specialized things which are related to that.
They have a tremendous data set, 16 million-plus training data points historically.
They have a tremendous data set, 16 million-plus training data points historically.
Pagaya’s business model is fee-based and capital-light.
The fee that they are earning is by selling the assets to the institutional client and earning AI network fee.
All the assets are never originated or serviced by Pagaya.
The fee that they are earning is by selling the assets to the institutional client and earning AI network fee.
All the assets are never originated or serviced by Pagaya.
Pagaya has a light balance sheet and low risk funding model while enabling global asset managers, pension funds, sovereign wealth funds, and very strong, well-known institutional clients around the world to participate and to acquire Pagaya’s network into their balance sheet.
Underlying all this I think the core competitive advantage of Pagaya is a network effect of a number of verticals(personal loans, auto loans, etc), marketplace partners(or suppliers), and institutional investors(or demand).
A key way to monitor the strength of this effect would be to keep a track of the number of marketplace partners/lenders and investors year over year and also the corresponding volume of the entire network.
What are Pagaya’s People and Culture like?
Pagaya was founded in 2016 by seasoned research, finance, and technology entrepreneurs, and is now 500+ strong in New York, Los Angeles, and Tel Aviv.
Pagaya was founded in 2016 by seasoned research, finance, and technology entrepreneurs, and is now 500+ strong in New York, Los Angeles, and Tel Aviv.
Pagaya’s values are:
Continuous Learning: It’s okay to not know something yet, but have the desire to grow and improve.
Win for all: Pagaya exists to make sure all participants in the system win, which in turn helps Pagaya win.
Continuous Learning: It’s okay to not know something yet, but have the desire to grow and improve.
Win for all: Pagaya exists to make sure all participants in the system win, which in turn helps Pagaya win.
Debate and commit: Share openly, question respectfully, and once a decision is made, commit to it fully.
The Pagaya way: Break systems down to their most foundational element, and rebuild them unique to Pagaya.
The Pagaya way: Break systems down to their most foundational element, and rebuild them unique to Pagaya.
What do Pagaya’s current Financials look like?
They will grow volume to the north of $7.5B in 2022 and to nearly $13B in 2023.
They expect that revenue growth will closely correspond to network volume growth, and they are forecasting to surpass $1B of revenue in 2023.
They will grow volume to the north of $7.5B in 2022 and to nearly $13B in 2023.
They expect that revenue growth will closely correspond to network volume growth, and they are forecasting to surpass $1B of revenue in 2023.
Over the longer term, given the magnitude of our market opportunity, they should be able to sustain very strong top-line volume and revenue growth for the foreseeable future.
They are investing heavily in research and development and hiring to accelerate their growth.
Given the incredible ROI on these investments, they do not expect to prioritize margin expansion in the very near term.
Given the incredible ROI on these investments, they do not expect to prioritize margin expansion in the very near term.
How is Payaga differentitated as compared to other fintechs?
We can see a current snapshot of comparison between Pagaya and its peers in the above image.
Pagaya seems to be outpacing their peers and is better at execution with product development cadence and scale, in 5 years.
We can see a current snapshot of comparison between Pagaya and its peers in the above image.
Pagaya seems to be outpacing their peers and is better at execution with product development cadence and scale, in 5 years.
We can see a current snapshot of Quarter over quarter growth comparison between Pagaya and its peers in the above image.
Pagaya seems to be outpacing its peers in growth.
Pagaya seems to be outpacing its peers in growth.
What do I think of the SPAC sponsor?
The sponsor is an operator and a leading investor in financial services companies.
They have committed $200 million as an investment in the PIPE.
Friedman will join Pagaya’s board and he is deeply entrenched in the financial industry.
The sponsor is an operator and a leading investor in financial services companies.
They have committed $200 million as an investment in the PIPE.
Friedman will join Pagaya’s board and he is deeply entrenched in the financial industry.
I believe this sponsorship will be an incredible boost for Pagaya.
What are my final thoughts on Pagaya AKA TL;DR;?
Pagaya Global is a highly differentiated AI platform that enables access to credit for consumers, increases outcomes for lenders, and finds really awesome investments for institutions.
Pagaya Global is a highly differentiated AI platform that enables access to credit for consumers, increases outcomes for lenders, and finds really awesome investments for institutions.
They have a strong competitive advantage with their network are the intensity of this effect is increasing at a rapid pace.
They have rapid product innovation and execution, a founder-led team, and a long runway for high growth.
They have rapid product innovation and execution, a founder-led team, and a long runway for high growth.
Their heavy investment in R&D coupled with an asset-light approach to underwriting and asset management are their key differentiators.
If you like this thread, give this tweet a like/retweet
https://twitter.com/ModernGrowthIn1/status/1462813218959552512
If you liked my summary about $EJFA - Pagaya Global check out my deep dive at
moderngrowthinvesting.substack.com/p/pagaya-globa…
moderngrowthinvesting.substack.com/p/pagaya-globa…
If you liked this thread and want to keep up with my insights and deep dives into businesses, please subscribe to my blog at
moderngrowthinvesting.substack.com/subscribe
moderngrowthinvesting.substack.com/subscribe
Tagging and sharing with few folks on fintwit who might be interested
@AlphaBetaAnil
@ParrotStock
@jiggycapital
@SixSigmaCapital
@PelotonHolder
@InvestiAnalyst
@Invesquotes
@Investing_Lion
@TSOH_Investing
@StockMarketNerd
@wolfofharcourt
@dhaval_kotecha
@Mayhem4Markets
@AlphaBetaAnil
@ParrotStock
@jiggycapital
@SixSigmaCapital
@PelotonHolder
@InvestiAnalyst
@Invesquotes
@Investing_Lion
@TSOH_Investing
@StockMarketNerd
@wolfofharcourt
@dhaval_kotecha
@Mayhem4Markets
Tagging and sharing with few folks on fintwit who might be interested
@MazwoodCap
@StockNovice
@rhemrajani9
@LuoshengPeng
@StratusYoung
@10kdiver
@DominicRinaldi9
@JonahLupton
@masterly_in
@Brian_Stoffel_
@BrianFeroldi
@Innovestor_
@BuyandHoldd
@MazwoodCap
@StockNovice
@rhemrajani9
@LuoshengPeng
@StratusYoung
@10kdiver
@DominicRinaldi9
@JonahLupton
@masterly_in
@Brian_Stoffel_
@BrianFeroldi
@Innovestor_
@BuyandHoldd
Tagging and sharing with few folks on fintwit who might be interested
@buccocapital
@borrowed_ideas
@buddhist_invest
@LiviamCapital
@SubstackLinda
@hhhypergrowth
@BlaineCapital
@BahamaBen9
@InvestmentTalkk
@FromValue
@EconomyApp
@SagaPartners
@Crussian17
@jablamsky
@buccocapital
@borrowed_ideas
@buddhist_invest
@LiviamCapital
@SubstackLinda
@hhhypergrowth
@BlaineCapital
@BahamaBen9
@InvestmentTalkk
@FromValue
@EconomyApp
@SagaPartners
@Crussian17
@jablamsky
Tagging and sharing with few folks on fintwit who might be interested
@richard_chu97
@MarceloPLima
@MT_Capital1
@RamBhupatiraju
@clueless_1337
@Mayhem4Markets
@GauchoRico
@investing_bear
@jiggycapital
@BluSuitDillon
@caleb_investTML
@Sweinvestor
@5kMand
@StackInvesting
@richard_chu97
@MarceloPLima
@MT_Capital1
@RamBhupatiraju
@clueless_1337
@Mayhem4Markets
@GauchoRico
@investing_bear
@jiggycapital
@BluSuitDillon
@caleb_investTML
@Sweinvestor
@5kMand
@StackInvesting
• • •
Missing some Tweet in this thread? You can try to
force a refresh
