BNPL And Omnichannel Partnerships Will Create Value Despite Risks

Key Takeaways

• Growth in digital payment solutions and omnichannel partnerships supports strong future revenue, driven by rising demand for flexible consumer options and digital retail channels.
  
• Enhanced analytics, new verticals, and scalable retailer partnerships improve credit quality, diversify revenue streams, and expand the addressable market for stable earnings growth.
  
• Persistent soft demand, credit risk, regulatory scrutiny, competitive pressures, and partner concentration threaten long-term growth, margin stability, and revenue diversification.

Catalysts

A financial technology holding company, provides payment options to consumers in the United States.

• Accelerating growth and improving profitability in the Buy Now, Pay Later (BNPL) segment through Four Technologies, which has achieved sustained triple-digit GMV and revenue growth and is now profitable, positions PROG Holdings to capitalize on increasing consumer demand for flexible payment options-likely supporting strong future revenue and margin expansion.
  
• Expanding and deepening digital and omnichannel partnerships (e-commerce GMV at an all-time high of 21%, new direct-to-consumer initiatives, and a ramp-up of platforms like PROG Marketplace) leverages the ongoing shift to digital retail channels, enabling further growth in transaction volume and potential top-line revenue growth.
  
• Enhanced data analytics, dynamic decisioning, and AI-driven customer engagement are improving portfolio credit quality and reducing write-offs (Q2 write-offs at 7.5%, 20 bps better year-over-year), supporting stable and improving net margins as loss rates decline and operational efficiency increases.
  
• Ongoing traction in diversifying revenue through new verticals (e.g., Money App cash advance profitably scaling, partnership ramp with ASI) diversifies the business model, mitigating cyclicality and supporting more stable and increasing revenues and earnings.
  
• Strong momentum in building scalable partnerships with large national and regional retailers, combined with a growing pipeline (noted increase in retail RFPs/RFIs and balance of share initiatives), enables further expansion of PROG Holdings' addressable market and supports sustained revenue and earnings growth over time.

PROG Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PROG Holdings's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.5% today to 5.2% in 3 years time.
• Analysts expect earnings to reach $141.4 million (and earnings per share of $4.21) by about July 2028, down from $214.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, up from 5.9x today. This future PE is greater than the current PE for the US Consumer Finance industry at 9.7x.
• Analysts expect the number of shares outstanding to decline by 6.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.29%, as per the Simply Wall St company report.

PROG Holdings Future Earnings Per Share Growth

Risks

• Ongoing soft demand in core leasing categories (furniture, mattresses, large appliances) and a delayed replacement cycle suggest secular headwinds that may place persistent pressure on revenue growth and limit GMV recovery in the long term.
  
• Rising competitive pressure in the BNPL segment (Four Technologies), including from well-capitalized pure-play fintechs, may force pricing concessions and compress margins as the space moves toward paywall/subscription parity and battles for customer acquisition.
  
• Persistent dependence on a subprime and thin-file customer base increases credit risk, and any future economic downturn or consumer credit tightening could raise write-offs above target ranges, directly impacting net margins and profitability.
  
• Increasing customer financial literacy, enhanced regulatory scrutiny, and potential legislative action (e.g., tighter oversight on subprime/lease-to-own products) could reduce demand for traditional offerings, increase compliance costs, or limit product flexibility, negatively affecting revenue and earnings.
  
• Loss of significant retail partners such as Big Lots, concentration among enterprise partners, and slower-than-anticipated expansion into new verticals or smaller/regional merchants may result in unpredictable revenue streams and elevated concentration risk, especially if new partnerships fail to materialize as projected.

Valuation

• The analysts have a consensus price target of $38.571 for PROG Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $27.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $141.4 million, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 8.3%.
• Given the current share price of $32.17, the analyst price target of $38.57 is 16.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.