Israeli fintech company Pagaya Technologies (Nasdaq: PGY) continues to confound expectations. The company listed on Nasdaq last month, after completing its SPAC merger at a company valuation of $8.5 billion. After initially falling hard, the share price has risen by an astronomical 814% since Tuesday of last week, rising 31.24% on Nasdaq yesterday, to close at $21.97, giving a market cap of $14.366 billion.
Having overhauled ICL (TASE: ICL: NYSE: ICL) (formerly Israel Chemicals) and NICE-Systems Ltd. (Nasdaq: NICE; TASE:NICE) in value yesterday, Pagaya is now Israel’s third most valuable company. Only Check Point Software Technologies Ltd. (Nasdaq: CHKP) with a market cap of $16.096 billion and SolarEdge Technologies (Nasdaq: SEDG) with a market cap of $18.011 billion are more valuable.
Last year, in the peak of the tech stock boom, it was routine to see new Israeli tech companies, debuting on Wall Street and almost immediately becoming one of the country’s most valuable companies in terms of market value, even if they were still lossmaking enterprises. In 2022, as the markets have slumped, such a phenomenon hadn’t been seen until the past week.
Pagaya’s debut on Nasdaq began predictably. The markets have weakened considerably since the Israeli fintech company agreed its SPAC merger last September and investors have shifted their preferences to value companies in traditional sectors, rather than tech companies like Pagaya that are still losing money.
So although Pagaya was still able to raise $350 million in its SPAC merger through investment, the share price quickly began falling in the last week of June, slumping to $2.70, giving a market cap of just $1.75 billion. But since July 20, the picture has changed dramatically.
Market sources believe there has been a short squeeze
There has been no obvious justification for the astronomical rise as Pagaya has not published any announcements or reports. The most reasonable explanation would seem to be that Pagaya has benefitted from a ‘short squeeze.’ Eden Discovery hedge fund founder and CEO Assaf Nathan (who holds no position on the share) estimates that an investor has bought Pagaya shares and taken advantage of the very low float value of the share.
Pagaya plunges 67% in first week’s trading
Meanwhile other investors who wanted to go short on the share, in other words profit from the share price falling, needed to borrow shares, but the smaller the float the more difficult it has been for them to find shares to buy to return the shares they have borrowed. So many short traders have needed to buy shares to cover their positions, and this has been pushing the share price up, in other words a short squeeze.
The skyrocketing price over the past week has taken place on considerably higher trading volume than in the opening weeks of the share’s trading, when average daily trading volume was 165,000 shares, compared with over 200,000 over the past week.
Most Pagaya shares are still non-tradeable, with the founders and other shareholders from before the merger not yet allowed to sell any shares.
Pagaya provides solutions based on machine learning and big data that allow financial institutions to more accurately manage credit allocation procedures. Pagaya was founded in 2016 by CEO Gal Krubiner, CRO Yahav Yulzari, and CTO Avital Pardo. The current share price makes the founders billionaires ‘on paper.’
In 2021, Pagaya had revenue of $475 million, up $99 million from 2020. The company reported a net loss of $134 million compared with a net profit of $4.9 million in 2020. EBITDA was $45.9 million, three times the amount in 2020.
Published by Globes, Israel business news – en.globes.co.il – on July 28 2022.
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