Pagaya Q2: Revenue, EBITDA Beat; Guidance Raised, Partners Grow

Pagaya Technologies reported second-quarter revenue of $245 million and adjusted EBITDA of $35 million, beating Wall Street estimates. The company also raised its full-year adjusted EBITDA guidance, citing improving unit economics and a growing roster of institutional funding partners.

The fintech firm uses machine learning to underwrite and manage consumer loans, earning fees from funding partners who purchase the loans. It does not hold the loans on its own balance sheet.

Revenue rose 14% from a year earlier, topping the $238 million consensus compiled by FactSet. Adjusted EBITDA climbed from $22 million in the same period last year. The company raised its full-year adjusted EBITDA forecast to $140 million to $150 million, up from $120 million to $135 million previously. The company maintained its full-year revenue guidance, the CFO said on the earnings call.

The funding partner network now stands at 17, up from 14 at the end of the first quarter. Additions included a large U.S. bank and a global asset manager, according to the company. Analysts at William Blair wrote that the broader capital base reduces Pagaya's reliance on any single funding source and gives it more flexibility to scale originations. The diversification also gives Pagaya more negotiating power on pricing and access to capital, they wrote.

Pagaya's take rate, the fee it earns on each loan facilitated, remained steady at 3.7%. The cost to acquire each loan fell to 0.9% from 1.1% a year earlier. The improvement in unit economics drove the margin expansion, the CFO said. The take rate has held steady for several quarters, indicating that Pagaya has not had to cut fees to attract funding partners, he added.

On credit quality, the 60-day delinquency rate on loans originated in 2023 stood at 2.1%, within the company's expected range. The 2022 vintage, which had shown higher delinquencies as consumers tightened, was now performing in line with expectations, management said. The company sees no signs of deterioration in the current portfolio, the CFO added.

The stock trades at roughly nine times the midpoint of the new adjusted EBITDA guidance, a discount to the broader fintech sector. William Blair, which rates the stock outperform, said the valuation does not account for the potential upside from Pagaya's expanding partner network and improving credit trends. The analysts wrote that the discount is unwarranted given the company's growth and improving credit performance.

Pagaya's core personal loan product grew 18% year over year. The company is testing auto loans and point-of-sale financing, though those verticals remain small. Management said it expects to launch a new product with a major retailer in the second half of the year, without naming the partner.

The company ended the quarter with $416 million in cash and marketable securities and no debt on its balance sheet. That liquidity gives Pagaya the ability to fund growth without tapping equity markets, the CFO said.

Pagaya shares have fallen 22% this year, underperforming the S&P 500's 14% gain. The selloff reflects broader concerns about consumer credit quality and the impact of higher interest rates on loan demand. Analysts at William Blair said the second-quarter results show the company's model is absorbing those pressures.