Last summer was particularly hot for the stock Pagaya Technologies . Within a few weeks, and without any conceivable explanation, the stock soared, giving the young fintech company, which merged with SPAC last June, a dream value of over $20 billion – the highest of all Israeli companies traded on Wall Street.
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● CEO of Pagaya responds to criticism: “We were not the Israeli Gamestop”
As high as the rise, so is the fall: after jumping almost 12-fold in two weeks, Pagaya’s stock on the Nasdaq plunged 96%, and is now trading at a market value of “only” less than $1 billion.
On Friday, after the company published its business results for the third quarter, the CEO of Pagaia and one of its founders, Gal Krobiner, commented on the increase in the stock price and the drop that followed it. According to him, “We are in a world where many technology stocks have dropped by 90%. If no other stock had fallen – and only we would have fallen – the conversation would have been different. But in the world where the face of things is, the conversation is different. Actually it works the other way around, it sharpens the investors’ view of our business. People check how good our business is.”
The surge in the Pagaya stock, which according to estimates was due to a lack of tradable stocks (floating goods), led to comparisons between it and the stock of the computer game store chain Gamestop, which stands out among the meme stocks that starred on Wall Street in early 2021. At that time, private investors and day traders were encouraged to invest in the stock , mainly in the WallStreetBets forum on the Reddit social network.
“I don’t think we were the ‘Israeli Gamestop'”
The “herd phenomenon” led many of them to purchase more and more shares and thus inflate their price, which caused meteoric increases in the shares in a short time, and damage to hedge funds that bet against those shares. As a result, the funds had to buy more and more shares to close short positions, thus the share price only continued to jump (“short squeeze”).
What may explain that short squeeze in Pagaya was a mechanism of blocking the shares of the founders and other stakeholders in the company in the months after the merger with Spak, which left few tradable shares in the market and created an extensive platform for speculative activity in the stock.
According to Krobiner, even today it is not clear to the company and its managers what led to the rapid rise in the stock. For a moment, the three founders of the company (CEO Krobiner, Chief Technology Officer Avital Pardo and Chief Revenue Officer Yahav Yolzari) were worth “on paper” 10 billion dollars.
However, according to him, “I don’t think we were the ‘Israeli Gamestop,'” and he emphasizes that apart from articles in the economic press in Israel, there was no concern in the company’s environment – including among its long-time investors – about the stock price when it went live. Krobiner claims that even from among the small investors almost no feedback was received regarding the Nachshoni jump: “There were zero ricochets regarding the share price.”
What did you think during the peak moments in the stock?
“At that time, I was working like a madman, 24/7, on the plane. So when you get into day-to-day practice, this thing has no effect. Besides, stock redemptions don’t work like that either – and there’s no desire either. We came here to build something that is very sustainable . So there is not much difference.”
The rise in Pagaya shares led to a shortening of the blocking period applicable to the company’s stakeholders, so that theoretically, Kroviner and his partners (as well as Clal Insurance and the Viola Group, the investors in the company) could sell, starting at the end of September, shares – even if at a significantly reduced price compared to the peak value. They chose not to. To date, the three together have realized about a million dollars (close to 300,000 dollars each), from the shares in their possession, which are still worth hundreds of millions of dollars.
How did entering Wall Street affect you as a company?
“She turned us into an organization that is much more organized and developed. This also had a significant impact on our bureaucratic processes. We are creating a world in which we are required to meet the highest standards that exist. For example, we are not required to publish our results every quarter, but we choose to do so “.
Does your market value have implications for purchase transactions you want to make?
“You need to separate a company that is going through a specific event, from a situation where the entire market is re-pricing. The entire fintech world has gone through the process, so if a company that is still private wants to do a deal with us today, it will take into account the relative value that existed before (the landslides). The pricing created today in the markets Reciprocal to all players”.
And what is your financial situation?
Krobiner points out that despite the drop in the stock, the company’s liquidity is in good condition. According to him, “We have 350 million dollars in cash and another 150 million dollars in a line of credit. We don’t burn much either.”
Merged in June with Spak for $8.5 billion
Pagaya was established in 2016. The company provides credit risk assessment services using technology based on machine learning and big data, thereby enabling credit providers to improve their operations.
During the last month of June, Fagaia completed its merger into Spak called EJF. The merger was done at a value of 8.5 billion dollars, an amount that sounded unusual at the time, after the cooling of the technology stock bubble on Wall Street.
From a business point of view, the third quarter results published by the company were successful compared to market expectations. The company, which develops artificial intelligence infrastructures for the world of consumer credit and operates mainly in the US, shows revenues of $204 million in the quarter – an increase of 49% within a year and above analysts’ forecasts, which expected an income of $182 million in the quarter.
In the bottom line, Fagaya concluded the third quarter with a loss of 74.8 million dollars, most of it from an accounting expense for recording compensation for employees.
Excluding one-time expenses, the adjusted loss (Non-GAAP) was 14.4 million dollars. The adjusted loss per share was 2 cents, better than analysts’ forecast of a loss of 3 cents.
The company left its revenue forecast for 2022 at $700 to $725 million. Adjusted EBITDA (earnings before taxes, depreciation and amortization) is expected to range from a loss of $20 million to a profit of $10 million.
The “partnership network” built by the company grew in the third quarter by 26%, to a total activity volume of 1.9 billion dollars.
Regarding the results of the third quarter, Krobiner notes that they “prove that our model, which is B2B2C (a business that operates with other businesses and through them reaches the end customer), works, and that it is stable in days of major macro changes. Ultimately, we are in a situation where investors receive a higher return for Their money, when there is no money in the market. The ethos of Fagaya is that we provide a win-win-win situation. Both for our partners and customers.”