Sunday, February 10, 2019

A Current AIM Small Cap Equity Holding: Green Dot Corporation (GDOT, $75.29): “Think Green” By: Ryan Dahlen, AIM Student at Marquette University

Green Dot (GDOT, $75.29): “Think Green”
By: Ryan Dahlen, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Green Dot Corporation (NYSE:GDOT) is a pro-consumer bank holding company and financial technology innovator which engages in the provisions of prepaid cards, debit cards, checking accounts, secured credit cards, payroll debit cards, consumer cash processing services, wage disbursement and tax refund processing activities. The firm was founded in 1999 and is headquartered in Pasadena, CA.

• GDOT is scheduled to release Q4 2018 earnings on February 20, 2019.

• Green Dot had a six step plan for 2018, the final of which was to repurchase shares and return capital to shareholders. However, GDOT did not purchase shares back in 2018.

• Key management including the CEO, President and Director Steven W. Streit, COO Kuan Archer and CFO Mark. L. Shifke have decreased their holdings of the stock. While major investment firms like BlackRock Fund Advisors have increased their stake in the company.

• Green Dot has also not completed any acquisitions in 2018.

Key points: 

Green Dot Corporation has increased their unrestricted cash and cash equivalents since December 31, 2017 at $919,243 to $1,037,617 in September of 2018. Green Dot primarily financed their operations through cash flows generated from operations. GDOT has increased their net income by 35.85% over the last year.  

In 2018 Green Dot set out to accomplish six-step plan to grow revenues, reduce expenses, and appropriately allocate capital. All with the objective of driving EPS growth. These steps include: to continue growing the number of active accounts year over year and improve the unit economics of those accounts, launch a new use case for MoneyPak and continue to increase the number of cash transfer transactions YOY, make strategic investments in new, high potential initiatives,  increase efficiencies across operating platform to expand margins YOY, continue integration of 2017 acquisitions and look for new ones, and finally return capital to shareholders through buy-backs.

Green Dot accomplished their first and second goal throughout 2018, GDOT saw an increase of 3% in active accounts which was primarily driven by the launch of new product in the first quarter of 2018. As well, MoneyPak which allows customers a convenient way to transfer/reload funds to prepaid debit cards saw a 9.78% increase of reload transactions in the three months ended September 30, 2018.

GDOT saw salaries and wage and third-party wage contractor expenses increase $15.0 million due to support of their growth initiatives in 2018 and a $10.0 million increase in employee-stock based compensation.  Green Dot did not make any new, high potential acquisitions in 2018 and instead focused on integrating 2017 acquisitions.

What has the stock done lately?

The past three months for GDOT has been very volatile with a high of $92.84 and a low of $69.92. Over the past week, Green Dot has returned -4.9% making it a good time to buy. With GDOT’s “BaaS” platform which is used by a growing number of America’s most prominent consumer and technology companies could bring more positive movement in the stock price.

Past Year Performance: 

Over the past year, the stock is up 31% compared to the RUT-RUX of 2%. Every quarterly earnings for the past year Green Dot Corporation has met expectations and the stock price has risen accordingly. GDOT has many growth opportunities and has continued to expand their market share, reach their goals and continue to see their cash flows per share increase as well.

Source: FactSet

My Takeaway
GDOT has made many successful acquisitions and continues to expand their margins as well as their product line. Even though the past three months the stock has underperformed the index, its long-term results have outstanding. With future buy-backs that Green Dot has indicated in 2018, may push GDOT to new 52-week highs. Earning for Green Dot is due to take place after-hours on 2/20/2019 and will be watched closely.   

Source: FactSet