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A shift in culture
"It's been a very challenging macro backdrop for the past two years," Choubey said. "But our most recent quarter was our best quarter on every meaningful metric. We were able to strike the right balance between profitability and growth."
While its stock fell more than 80% following its 2021 IPO, MoneyLion's most recent earnings call in November reported record revenue of $110 million, up from about $80 million the prior year and net income of $1 million compared to a $24 million loss the prior year. The New York-based MoneyLion was founded in 2013.
Over the past year, MoneyLion has diversified its products, relying less on payments-driven consumer lending and other credit offerings and more on savings accounts. That has resulted in revenue from lending falling from 88% of its total revenue mix to 55% in a year, helping it move from the red to the black.
When it comes to focusing on profits over fast user growth, there's an adjustment in corporate culture, said Choubey. "You are telling people who are creative and imaginative to slow down," he said. "You have to slow the next product release, push it out to the next horizon."
MoneyLion's next project is not a lending product but a financial search engine, which will recommend options to the company's existing payments and financial services consumers. This could take consumers to other companies, but will also expand available products for MoneyLion's enrolled customers.
"We're giving that search advantage back to the customer," Choubey said.
Boosting assets
Pagaya, which is based in New York and Tel Aviv, has recently focused on keeping its
Last month, Pagaya reported earnings before interest, taxes, depreciation and amortization of $28 million in the third quarter, an increase of $33 million over the prior year's loss. It also reported net income of $14.3 million and record network transaction volume of $2.1 billion, which was higher than its prior outlook of $1.9 billion.
"Managing growth and profitability is a common challenge that gets amplified more in difficult markets," said Gal Krubiner, CEO of Pagaya.
To manage risk in an economically adverse environment, Pagaya operates a two-sided network that connects lenders and investors. Pagaya uses internal machine learning to evaluate loans that the lenders would normally reject based on their own decisioning engines, and
Asset-backed securities bundle auto loans, credit cards, mortgages and other types of credit for sale to raise liquidity to extend more credit. Pagaya has sold $4.9 billion across 11 ABS deals during the first nine months of the year, and is the largest consumer-lending ABS issuer in the U.S. for 2023, raising $700 million in the ABS market as recently as early November.
Other BNPL lenders that use the ABS market to raise capital, such as
Krubiner says using the ABS market means consumers get access to BNPL and other financing, and at the same time, lenders can extend loans while reducing risk (the sale of asset-backed securities to institutional investors takes the loans off of the lenders' balance sheets). Investors earn yield through buying the loans. About 90% of the loans are recurring, which Krubiner says makes the loans attractive to the institutional investors.
As interest rates increase, investor discipline increases, which makes fast user growth without a strong balance sheet less attractive.
"It's true that good companies may invest heavily in growth and/or innovation in the present with a view to generating sustainable profits in the future," said Eric Grover, a principal at Intrepid Ventures. "But in an environment of low-cost capital, investors tolerated and businesses spent on growth without clear or even plausible paths to profits, or growth for growth's sake."
Ultimately, profits dynamically direct resources to well-managed enterprises producing value, Grover said. "Sustained losses signal talent and capital should be reallocated to better uses."
