Pagaya Targets $200M Net Income Run Rate as Lending Network Expands

Pagaya Technologies NASDAQ: PGY CFO Jonathan Dobres outlined the company’s growth strategy, funding model and profitability trajectory at the 46th Annual Canaccord Growth Conference, emphasizing expansion with existing lending partners as well as new partner additions. Dobres described Pagaya as a technology platform that connects lending partners with institutional capital, using an AI-based decisioning engine to evaluate loans that are funded primarily off balance sheet. The company currently operates with about 35 lending partners across personal loans, auto lending and point-of-sale financing, with approximately $14 billion in annualized consumer loan volume, he said. Pagaya reported net income of $45 million in the prior quarter, according to Dobres, and has increased net income in each of the past six quarters since becoming profitable. He said the company expects to exit the year with a $200 million GAAP net income run rate. Dobres said Pagaya’s growth is driven less by widening its credit criteria or increasing consumer marketing spending and more by adding lending partners, launching products and gaining access to a larger portion of partners’ application funnels. Earlier in the year, Pagaya reduced or largely eliminated originations in its two riskiest credit tiers after identifying those lower-income borrower groups as potentially more exposed if consumer conditions weakened. Despite that step, the company continued to grow by accessing more applications through its lending partners, Dobres said. In the second quarter, Pagaya’s total dollar value of applications exceeded $300 billion for the first time. Dobres said product-led growth was a contributor to the company’s 140% year-over-year auto growth. In auto lending, Pagaya previously received applications that a partner had declined. The company now works with partners to identify borrowers whom the lender may technically approve but whose original offers may be less likely to convert. Pagaya can offer those borrowers different loan terms, potentially resulting in a funded loan under the partner’s name while allowing the partner to retain customer contact, servicing revenue and dealer relationships. Dobres said this higher-funnel access has supported stronger borrower and collateral characteristics. In personal lending, he said Pagaya’s average borrower has about $120,000 in income and a FICO score in the 670-to-680 range. In auto lending, the average vehicle at loan inception is now about three years old with 30,000 miles, compared with vehicles that were roughly five to six years old with 60,000 miles two years earlier. Pagaya has added five...