Fintech’s False Promises

The market, they say, is unmoved. Two months into the year, the S&P 500 stands barely breathing. Inflation clings like a shadow, yet the American economy, that tireless beast, still kicks. But the numbers, the pretty charts… they fail to stir the beast’s slumber. They speak of resilience, but I see a weariness, a quiet desperation in the eyes of those who fuel it.

Old Graham, a man who understood the gears of this machine, spoke of a voting machine in the short term, a weighing machine in the long. A truth for those who have hands calloused from counting. Hold the stock, he said, and wait for gravity to sort the wheat from the chaff. Fine words, but they offer little comfort to the driver scraping by on app-based commissions, the homeowner staring down a rising mortgage.

Let us look, then, at two specimens from the fintech menagerie: Block (XYZ 2.20%) and Pagaya Technologies (PGY 0.93%). Wall Street whispers of gains – 65% for one, a staggering 195% for the other. Such promises are spun like silk, but remember, silk often conceals a rough, unyielding core.

1. Block, Formerly Square

Square, they called it. A clever name, evoking honesty, simplicity. It offered a platform for those who deal in the tangible – the baker, the carpenter. A digital ledger for the honest trade. It became Block, a change of name, a shedding of skin. A sign, perhaps, of ambitions stretching beyond the grasp of simple commerce.

It soared, once. A beacon of innovation, promising to liberate the small merchant. Then came the troubles. A spreading of resources, a chasing of shadows. Profitability, that most basic of necessities, remained elusive. They reached for services beyond their core, like a man grasping at clouds. The market, that fickle judge, turned away. The stock, once a symbol of boundless potential, now sits bruised and humbled, 80% below its former glory.

Is it a bargain now? Perhaps. It trades at a modest valuation, but cheapness alone does not guarantee salvation. The market demands more than a low price; it demands a conviction, a belief in a future trajectory. And Block, for years, has failed to chart a convincing course.

The last earnings report offered a flicker of hope. Sales edged upward, and margins improved. But the true story lay in the announcement of downsizing – a reduction of 4,000 souls. A brutal reckoning, a shedding of weight. It speaks volumes about the bloat that had accumulated, the layers of ambition built upon a shaky foundation.

They speak of artificial intelligence, of efficiency. But I see a vulnerability. What happens when the very tools designed to empower these platforms become capable of replacing them? The risk is real, as is the reliance on Bitcoin, that volatile phantom. The cryptocurrency’s decline drags down Block’s revenue, a reminder that even the most innovative platforms are tethered to the whims of the market.

A recovery is possible, but it is not guaranteed. It remains a gamble, a wager on a future that is far from certain.

2. Pagaya, the AI Answer to Credit

Pagaya promises a revolution in credit. A sophisticated platform, assessing risk with the cold logic of algorithms. Approving loans at higher rates, packaging them into securities, selling them to the institutions. It grows rapidly, fueled by the insatiable appetite of the financial machine. Revenue increased, net income exceeded expectations. A triumph of efficiency, or a prelude to another crisis?

It operates in five credit sectors, partnering with giants like U.S. Bancorp and Visa. Backed by a network of 150 funding backers, it secured another $800 million in funding. A fortress built on data, algorithms, and borrowed capital.

If Block appears undervalued, Pagaya is practically giving itself away. A price-to-sales ratio of 0.8, a forward price-to-earnings ratio of 3.8. Yet, the market remains skeptical. The recent earnings release triggered a sell-off. The reasons are clear.

The single-family rental operation, acquired through Darwin, is struggling. The real estate market is faltering, dragging down Pagaya’s network volume. Without this segment, growth appears more robust, but it is a fragile illusion. The numbers are massaged, the narrative carefully constructed.

The outlook for 2026 is underwhelming – a mere 15% increase in revenue. Hardly the explosive growth expected from a fintech darling. The market demands more, and Pagaya appears unable to deliver.

Despite the challenges, all ten analysts covering Pagaya recommend buying the stock. Their target prices are, predictably, optimistic. But remember, analysts are paid to find reasons for hope, even when the evidence suggests otherwise.

2026-03-04 14:03

1. Block, Formerly Square

2. Pagaya, the AI Answer to Credit

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