It's not so simple to turn $100 into $1,000 in one year. At least not in the stock market. Investors looking for that kind of gain typically speculate in riskier investments such as cryptocurrency. The stock market generally offers a more stable environment in which to grow your money. The trade-off is gains that could be spectacular -- but come over long periods of time.
There are always nice surprises, though stocks that offer the potential for dramatic gains are also riskier. Most stocks that could possibly go 10x -- that is, gain 900% from the initial investment -- will be newly public companies that get traded up as investors get excited about their prospects.
In today's market, there are even more opportunities to get in early on IPOs because of the special purpose acquisition company (SPAC) craze. In 2021, more than a thousand companies went public, an annual record by a wide margin, creating many opportunities but perhaps some confusion. SPACs are bringing more stocks to market than ever, and at cheaper prices -- the way SPACs are structured, shares go to market at $10 apiece, giving individual investors early access to cheap prices. The trick is to choose the right SPACs, since many start trading before they even find a company to bring public.
One company that's set to go public in early 2022 is fintech company Pagaya, which has partnered with SPAC EJF Acquisition (EJFA) If you invest now, will you see your investment go 10x? Let's investigate.
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What does Pagaya do?
Pagaya is in many ways similar to popular fintech company Upstart Holdings. It's a lending platform that uses artificial intelligence to help partners better assess borrowers, delivering higher conversion rates with less risk. It was founded in 2016 in Tel Aviv and now has offices in New York and Los Angeles. Right now, it has partners across the banking and fintech spectrum, and its model supports the unsecured consumer, auto, point-of-sale, credit card, and real estate sectors. It has added one new product annually since 2018 -- first personal loans, followed by auto, credit card, and this year, real estate. It already has plans to enter mortgage, insurance, and other "data rich" markets in the coming years.
Unlike Upstart, Pagaya works with institutional lenders who buy asset-backed securities, creating a huge financial network of partner companies that can sell an asset product to a customer and then sell the loan to a larger institution, a cycle that enables putting more money into the system for more loans to be approved with lower risk for all parties. Pagaya has 170 researchers and data scientists modeling the data for accurate and lower-risk loan approvals. CEO Gal Krubiner calls it "FICO plus plus plus."
It works with a simple API plugin, so partner companies can easily integrate its platform into their software systems, and it has already absorbed more than 16 million data points to improve its machine learning. It has evaluated more than 17 million applications over the past 12 months across its network with instant results. Krubiner comes from a background structuring asset-backed security products for UBS, and the rest of the management team has similar experience in banking and technology.
How is Pagaya doing?
Pagaya is still a fairly small company, with $320 million in revenue for the first nine months of 2021. That's 220% above full-year 2020 revenue. The second quarter of 2021 represented 300% year-over-year revenue growth and $4.7 billion annualized network volume.
Its network volume has increased at a compound annual growth rate of 154% since 2019, and volume from its newer markets is accelerating faster than its older products at the same stage. Very impressively, it has a 100% retention rate of partners that joined since 2018. Partners' median volume on the Pagaya network increases three times after six months, and six times after 12 months.Krubiner says that some lenders have see their loan approval rate increase by as much as 30% using the Pagaya platform.
What are the opportunities?
Pagaya has a massive addressable market, and it has yet to tap its largest sectors. According to data from TransUnion, its major markets come to a total of nearly $4 trillion in volume, and it sees $18 trillion in its combined industry assets.
Its strategy is more expansive than Upstart's, as it seeks to underwrite a full credit-analysis ecosystem for all industries that deal with money-borrowing and investments. It also earns fees from both sides. It collects fees not just from the partners that use its platform to underwrite loans, but also from the institutional investors that acquire loan volume -- its major source of revenue, accounting for 90% of the total. It also has a small segment that invests its own money and accounts for 1% of revenue.
Should you buy shares?
The SPAC deal is scheduled to go through in the coming months, valuing the company at $8.5 billion, or about 12.5 times its estimated 2022 revenue. In the meantime, shares of the shell SPAC have remained about level, and probably will stay around $10 until the deal goes through. Its current market cap is about $355 million.
The frenzy surrounding Upstart has moderated somewhat as the stock's valuation has skyrocketed, but it still gained 271% in 2021. Pagaya's similar business offers tremendous opportunities for gains. As a new company, there's plenty of risk involved. Pagaya hasn't proven itself for long enough to be a secure investment. And there's no guarantee that any investment could go 10x -- even over four or five years, let alone one. But with a starting price of $10 per share and a big opportunity, Pagaya gives you a chance to really grow your money in 2022.