Unconventional Value: Pagaya Technologies ($PGY) Investment Case

In his Mid-Year 2026 letter, Tim Gallagher of Unconventional Value describes a portfolio that looks substantially different than it did six months earlier, with the largest change being a decision to trim Planet Labs — for much of the past four years his largest position and, by his account, the single largest driver of his returns. Gallagher explains that he came to view Planet’s valuation as untenable and believed future returns would be increasingly divorced from the fundamental progression of the business, though he chose not to exit entirely given his belief in great companies surprising to the upside. He rolled much of the proceeds into Pagaya Technologies ($PGY), now his largest position, which he frames as a data network positioned to benefit as AI becomes the default infrastructure for consumer lending.

Investment Highlight: Pagaya Technologies ($PGY)

Business Overview

• Gallagher describes Pagaya as being in the business of connecting borrowers and investors, without interacting with borrowers directly
• According to the letter, the company partners with banks and fintechs to underwrite their application flow
• Gallagher explains that partners agree to this because Pagaya shares fee income while enabling them to retain and win more customers without taking balance sheet risk
• He characterizes the value proposition to investors as more fluid and directly dependent on meeting their required return, but says the rapid growth of the funding base leaves him comfortable with how Pagaya is delivering on that promise

The AI and Data Thesis

• Gallagher states the thesis rests on a broader foundation: he believes the infrastructure for consumer lending — fraud, underwriting, servicing — will be transformed by AI over the next decade
• The letter argues Pagaya stands to win from AI becoming the default in that stack
• Gallagher points to the company’s unique, multi-asset class data, collected from the application flow of over 30 partners, including applicants approved by the lender’s own models, as a distinct advantage
• He believes AI models may become more commoditized over time while differentiation in data only grows in importance, and says he thinks of Pagaya at its core as a data network

Funding Structure and Growth Model

• Gallagher highlights Pagaya’s use of pre-funded ABS, raising capital from investors before originating loans, which he says eliminates the liquidity risk faced by many similar companies
• He views reaching consumers through partners as a more efficient growth model, with growth coming from adding new partners and cross-selling existing ones rather than scaling marketing spend
• According to Gallagher, the impact of both factors can be seen in the company’s consistent expansion through the credit contraction of 2022 and 2023

Operating Leverage

• Gallagher notes that as a volume-based revenue model, the business benefits from built-in operating leverage
• He expects fee revenue to grow with network volume without corresponding increases in a largely fixed cost base
• The letter observes the company already has the resourcing needed to support new partner onboarding, with tech spend roughly flat for the last three years

What Gallagher Sees as the Market’s Misunderstanding

• Gallagher believes the market’s central error is conflating the recent slowdown in growth with fundamental weakness in the business model
• He attributes slowing growth directly to the decision to step back from single-family rentals, arguing headline numbers obscure network volume still growing north of 20%
• According to Gallagher, the emphasis on growth today misses network expansion as the biggest contributor to future growth
• He points to Pagaya’s shared expectation of adding at least eight partners this year, well ahead of a long-term guide of 2-4 annually, and believes the ramp of those partners over the next few years provides visibility into durable growth

Product Expansion Beyond Second-Look

• Gallagher cites the company’s expansion beyond being simply a second-look option as a factor in the timing of his investment
• Per the letter, new products — outside second-look, or what the company calls decline monetization — accounted for 44% of network volume and 50% of FRLPC (gross profit) in 2025
• Gallagher views this as the beginning of Pagaya’s transformation into a broader technology platform serving lenders of all kinds
• He notes multi-product partners already account for roughly 70% of network volume despite representing only about 30% of partners, and believes there is a lot of room to run

Valuation

• Gallagher frames the entry point against guided 2026 net income of $110-160 million and a market cap just above $1 billion for much of the first half of the year
• On that basis, he says he paid approximately 8-12x earnings
• Gallagher believes the business can compound at 15-20%+ over the long haul and does not think a much better deal is available at that price

Gallagher presents Pagaya as the natural destination for capital freed up by trimming Planet Labs: a partner-driven, pre-funded lending network he believes carries structural operating leverage, an expanding product set, and a proprietary data asset that becomes more valuable as AI models commoditize. He believes the market has mistaken a mix-driven growth slowdown for a broken model, and views a high-single to low-double-digit earnings multiple on a business he expects to compound in the mid-to-high teens as the core of the opportunity.

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