Pagaya executives were looking at $200 million windfall had stock price held up
Pagaya executives were looking at $200 million windfall had stock price held up
The founders, managers, and directors of the fintech company received generous option allocations, but they have been unable to convert them to cash with Pagaya’s share price falling by 92% since going public in June 2022
Israeli fintech company Pagaya has lost 92% of its value since it began trading on Nasdaq in June 2022, costing investors, but mainly its executives, a lot of money. Had Pagaya, which completed its SPAC merger at a valuation of $8.5 billion, managed to maintain a value of billions of dollars, the combined salary cost of the three founders — CEO Gal Krubiner, CTO Avital Pardo, and CRO Yahav Yulzari — would have reached an astronomical sum of $161 million in 2022. The salary cost of all the directors and managers of the company could have reached $196.8 million, but most of the amount, $172.2 million, would have been equity compensation (stock and option-based payment).
As of today, it is highly doubtful whether Pagaya's managers will ever see this money. The equity compensation for Pagaya's managers and directors was given in 2021, based on the $8.5 billion valuation according to which the company eventually completed the merger with the American SPAC EJF. The exercise price of the options, most of which matured after the completion of the merger, ranged from $0.03 to $4.28. Today, Pagaya's share price is $0.89, and its market cap is only $627 million. That is, the options are mostly out of the money, and Pagaya confirmed that these options have not been exercised.
The three founders received a salary and cash grants totaling $8.4 million in 2022. The cost of their equity compensation was tens of millions of dollars for each of them: Around $43 million for Krubiner and Yulzari, and $65.5 million for Pardo.
Although the managers and directors did not meet with the big money, these salary costs are weighing on Pagaya’s books. In 2022, Pagaya's revenues grew by 58% and reached $749 million, but expenses doubled from $480 million to more than $1 billion, and the net accounting loss deepened from $91 million in 2021 to $302 million in 2022. The accounting loss was significantly affected by the equity compensation for the company's employees, primarily the managers and directors, subtracting $242 million from the bottom line.
Pagaya, which laid off 20% of its workforce in January, saw its share price rocket last summer after a herd of speculators identified the opportunity to dramatically affect the stock price due to its low liquidity. The company peaked at a valuation of around $20 billion, but the trend soon reversed and Pagaya lost over 90% of its market cap.
Pagaya response: "Almost all the options granted to the founders were granted in 2021 when the value of the company was in the billions of dollars. Accordingly, the options were deep in the money and the accounting value at the time of the grant was high. Today the value of the company is less than a billion dollars, the options are out of the money and the economic value has dropped substantially, to several millions of dollars. That is, the accounting expense does not reflect the economic value today."
