Aaron’s Holding Spin-off (Aaron’s Inc) Notes
- Good quick write up on Progressive Leasing.
- Osterweis Capital’s investment thesis on Aaron’s and Progressive.
- How Peloton has used Affirm to skyrocket growth.
- Good Bloomberg article on growth of buy now pay later.
- Good article on Afterpay and Affirm of Japan.
- Afterpay deck by Hayden Capital.
- Afterpay investment thesis by Hayden Capital.
- Here are reviews for Progressive Leasing from Better Business Bureau. Average review: 1.6/5.
- Here is an example:
- This is the worst company to lease anything from! Stay away! I’ve tried to return a recliner for 30 days now and all they do is leave me on hold or hang up! Luckily the furniture store is working with me at this point because they see how horrible progressive has been with assisting me with adjusting my lease amount for the new recliner. Do not get a lease with these idiots! Also, make sure they send you something in writing if you pay your furniture within the 90day window, if not they’ll keep charging you the full lease amount!
- Interestingly, the reviews for Afterpay are not much better. Average review: 1.44/5
********. I purchased two pairs of shoes using afterpay from f************* Both pairs of shoes were damaged and both pairs of shoes were returned to Finishline I told them this dozens of times Then I start getting contacted by their collection agency because apparently the receipts along with the documentation showing that both shoes were returned they sent my account to a collection agency. I then informed the collection agency that both shoes were returned. They told me they would get in touch with Afterpay and would cease collection Well today I received an email stating that they have opened the collection back up and afterpay is still stating I owe money. I will not pay for an item I do not have. Its quite pathetic
- Affirm, a start up, founded by former PayPal founder, rumored to be valued at $5BN to $10BN, has similarly bad Better Business Bureau Reviews. Average review: 1.19/5.
- In their defense, many of complaints are regarding Affirm not approving applicants for credit, not usurious practices.
Terrible service all around. I tried to use Affirm for a larger purchase, purely for convenience since they advertised 0% interest. I went through the online identity verification – even took photos of my license, my face, my face next to my license, etc. and was rejected because they still couldn’t verify my identity. I get an e-mail that says they obtained information that led to my rejection and that I could “ask” what that was, which I did. For the record, I have 800+ credit score so I’m not sure what “obtained information” they could be referring to. I called and they said because they can’t verify my identity I can never make an account with Affirm. I literally had to restate this back several times to make sure I was understanding this correctly. Because THEY could not figure out WHAT was missing from verifying my identity, and I couldn’t do anything to fix that, I can NEVER use them. What an absolute joke of a company. Good luck with that business model. I’ll take my business elsewhere.
- The Rent-to-Own Racket
- This report alleges predatory practices that may be common in the industry.
- According to this report, the large majority of customers never come to own the merchandise.
- If they pay installments for the full term and achieve ownership, the total cost of the item to them is much more than they would have paid if they bought it up front.
- There has been a A LOT of protest from regulators that this is usurious.
- They assert that there is an implied rate of interest that is very high. The defenders of rent to own” argue that people can return their merchandise at any time, that most never achieve ownership and don’t want to (e.g a transferred executive wants a refrigerator for a three month temporary assignment).
- There is no credit check, service is absorbed by the company. So the biggest risk is a law that would outlaw the “rent to own” concept, unlikely in my opinion.
- It’s kind of like “pay day loans”; they fulfill a real need but are very expensive.
- The fact that Progressive has been growing like crazy is really compelling, but if Elizabeth Warren becomes Secretary of Treasury, she may go after companies like Progressive.
- Need to research whether she has a stance on the “rent-to-own” industry and alleged abuses.
- The more I read about the “lease/rent to own” industry, the more excited I am about Progressive.
- Good articles:
- Good WSJ article on buying small goods through installments.
- Offering Options: Niche lending and fintech cross paths in Silicon Slopes
- Three Utah lenders offer financing on purchases.
- Snap Finance
- Acima Credit
- Progressive Leasing
- They cater to under-capitalized would-be borrowers seeking financing on consumer purchases.
- For the one-third of the U.S. population who are credit challenged,” says Ryan Woodley, CEO of Draper-based Progressive Leasing, “a lease-to-own purchase program with no credit needed” can be a viable option. Progressive has seen remarkable growth, “skyrocketing from $228 million in 2012 to $1.2 billion in 2016.” That’s more than 5X revenue growth over four years, or 130 percent averaged per annum. Not too shabby—the demand, apparently, is quite real.
- Three Utah lenders offer financing on purchases.
- Affirm is a fintech start up that was founded by Max Levchin (cofounded company with Peter Thiel that ultimately became PayPal).
- Company has filed confidentially to go public. The rumored valuation is between $5BN and $10BN. WSJ article on Affirm.
- The company could also go public through a SPAC.
- The company offers consumer the ability to pay for goods in installments through a short term loan.
- Affirm is partnering with Shopify to offer its functionality to the merchants on the Shopify platform.
- Generally loans are unsecured so lenders can’t repossess the purchased item if the consumer doesn’t pay their installments. However, consumers can be referred to debt collectors.
- Australia based fintech firm Afterpay has partnered with more than 6,500 U.S. merchants since entering the market in 2018.
- Publicly traded player that looks interesting is Flexshopper (FPAY). It is much smaller, but growing at double digit rates and trades at 18x 2020 earnings but just 5.0x 2021 earnings). Revenue grew 18% in the most recent quarter and there has been a ton of insider buying.
- On July 29, 2020, Aaron’s Holding Co (AAN) announced that it intends to split into two companies.
- The plan is spin off Aaron’s, the company’s ~1,400 company-operated and franchised stores in 47 U.S. States & Canada, the ecommerce platform, Aarons.com, Woodhaven Furniture Industry.
- The spin-off
- Business will face secular challenges as it is mainly a brick and mortar business.
- However, there are a couple positives.
- The business is counter cyclical. It tends to do well in weaker economic environments. Check out this excellent overview of the Rent-to-own industry.
- The company has actually been doing pretty well recently. In the most recent quarter, revenue increased 3.4% and same store sales increased 7.3%.
- Once the spin-off is complete, the market will have to assign some value to Aaron’s. Even it the stock trades at 5x earnings, I think that will be accretive to the current total stock price.
- The remaining business (Progressive) is the more interesting opportunity.
- It partners with third party retailers to offer a “Lease to Own” payment option.
- Seems like it’s a secularly growing market. I’m seeing “Buy Now Pay Later” options everywhere.
- Since Aaron’s acquired Progressive, revenue has grown over 4x to $2.5BN.
- Concern is Progressive is taking credit risk. But the items purchased are relatively small ticket items (although I see Automobiles, certainly not small ticket items, represents 7% of sales) and the payback period is very quick. Thus, the credit risk should be able to be managed. Further, Progressive has been doing this for a very long time.
- Other useful links:
- Other thoughts:
- There has no been insider buying recently. If it’s so cheap, why aren’t insiders buying shares? What am I missing?
- The company basically has no debt and has been buying back shares.