PGY vs. TREE: Which Disruptive Lending Platform Has More Upside Ahead?

Core Insights - Pagaya Technologies Ltd. (PGY) and LendingTree, Inc. (TREE) are fintech firms aiming to innovate the lending sector through different approaches [1][2] - PGY leverages AI for credit underwriting and securitization, while TREE operates an online marketplace connecting borrowers and lenders [1][2] Pagaya's Case - Pagaya's adaptable business model and capital-efficient structure allow it to diversify beyond personal loans into auto lending and point-of-sale financing, enhancing resilience [3][11] - The company has established a network of over 135 institutional partners and utilizes forward flow agreements for funding stability during market disruptions [4][6] - Pagaya's proprietary technology, including the Pre-screen solution, enables lenders to offer pre-approved loans, improving credit access with minimal marketing costs [5] - The capital-light model limits credit and market risk, maintaining liquidity and minimizing loan write-downs, with $206.5 million in cash against $507.8 million in debt as of March 31, 2025 [6][7] LendingTree's Case - LendingTree has evolved its strategy to diversify into non-mortgage products, including personal, auto, small business, and student loans, enhancing its marketplace offerings [8][9] - The launch of the WinCard in 2023 marks its entry into the branded credit market, while initiatives like SPRING and TreeQual improve cross-selling opportunities [9][10] - LendingTree's investment in EarnUp reflects its commitment to a tech-enabled ecosystem for financial health management [10] Financial Performance and Projections - Pagaya expects 2025 revenues between $1.175 billion and $1.3 billion, with year-over-year growth of 19.9% and 15.7% for 2025 and 2026, respectively [19] - The consensus estimate for Pagaya's earnings indicates a significant increase of 195.2% for 2025 [19] - In contrast, LendingTree projects 2025 revenues between $955 million and $995 million, with lower growth rates of 9.2% and 6.4% for 2025 and 2026, respectively [20] - LendingTree's earnings growth is expected to be 43.9% for 2025, but a decline of 3.5% for 2026 [21] Market Performance and Valuation - Pagaya's stock has surged 130.3% this year, while LendingTree's has decreased by 4.6% [13] - Pagaya's price-to-book (P/B) ratio is 3.66X, compared to LendingTree's 4.66X, indicating a more attractive valuation for Pagaya [14][15] - Pagaya's return on equity (ROE) is 9.28%, lower than LendingTree's 14.76%, suggesting LendingTree is more efficient in generating profits [15] Investment Outlook - Pagaya's rapid scaling, capital-light model, and strong growth outlook make it a compelling investment opportunity compared to LendingTree [23][24] - While LendingTree has a well-established marketplace, its growth is slowing, making Pagaya appear better positioned for long-term gains [24]