Wednesday, May 1, 2019

A Current AIM Small Cap Equity Holding: Green Dot Corp. (GDOT, $62.14): “The Grass Will Get Greener” By: Brandon Shanklin, AIM Student at Marquette University


Green Dot Corp. (GDOT, $62.14): “The Grass Will Get Greener”
By: Brandon Shanklin, 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.
 Summary:

Green Dot Corp. (NYSE:GDOT) is a major player in the growing FinTech space.  GDOT operates mainly out of two segments: Account Services and Processing and Settlement Services.  Account Services segment offers deposit account programs that can be acquired through omni-channel distribution platform. Processing and Settlement Services segment includes products and services that all specialize in facilitating the movement of funds on behalf of consumers and businesses.

• Operating revenue for GDOT was $238 million, a 12% YoY growth. The 12% growth is all organic, as there have been practically no inorganic growth or attempt for acquisitions in the past year, besides the UniRush acquisition in Q1.  UniRush contributed to $20 million in revenue for two months.  FY2018, GDOT recorded revenue of $1.042 billion, a growth rate of 17% YoY of which exceeded initial guidance range by $52 million.

• 2019 seems to be a strong year for GDOT according to management.  GDOT guidance includes operating revenue growth of about 10% or low double-digits.  The majority of this growth according to management will come in the second half of the year, as growth from new programs like Stash, Uber Rewards, and Apple Pay Cash is expected to gain momentum.  For Q1 2019, guidance calls for about 6% growth in net revenue.

Key points: 

Green Dot Corp. reported on February 20th, 2019 regarding its Q4 2018 results, in which they beat earnings widely and improved margins noticeably.  From the date of their earnings report, GDOT stock price has actually stumbled.  This stumble is driven by remarks and upcoming events that were acknowledged in the earnings call by management.  The most prominent driver of concern is GDOT’s contract with Walmart set to expire in May 2020, in which there hasn’t been much conversation of renewal or much renegotiation.  This contract with Walmart makes up 37% of GDOT’s revenue.  This shouldn’t be very concerning, as management claims that it’s 5-year contract with Walmart and potential renewal has been providing Walmart with useful products and services, in which Walmart has been “a good company to do business with”.  The second driver for concern in this stumble since the earnings call is GDOT’s BaaS program which lagged in the additions of new clients, as their goal was to have one or two closings per quarter but couldn’t attain that.

Although on the other hand, GDOT’s BaaS program has beat sales expectations and continues to grow which is a positive.  GDOT’s BaaS program powers Apple Pay Cash.  According to Apple CEO, Apple Pay will reach 10 billion transactions this year, and with each transaction there are rewards associated with them.  With this growing number of transactions, it leads to higher interchange revenue for GDOT.  As Apple continues to prosper, it trickles down to Green Dot Corporation.

In the earnings call, GDOT announced two new programs which will be implemented and initiated in the near future.  The first one being GDOT’s Gen Z MODE (Mobile Only Digital Everything) program, which management said this programs intention is to serve younger generations, specifically school age to mid-20s. Management claimed that this space is not occupied and that “there is no bank that is currently serving Gen Z” so in turn GDOT would be the pioneer.  With the way technology has been advancing and the trend of newer generations digitalizing everyday tasks, GDOT may have a winner on their hands.

The second program that GDOT announced is their bOS (Bank Operating System) program, in which management stated that this program “may be the biggest program in the company’s history”.  This program is tied to their API, or Application Programming Interface, model which gives businesses the ability to create and build on their own time rather than having to outsource or hire someone else to do it.  The bOS is convenient for smaller businesses and start-ups who are in need of payment services but aren’t big enough or don’t have the capital to outsource.

What has the stock done lately?

With the effects of their UniRush acquisition finally being realized and a promising 2019, Green Dot Corporation stock is up 8.74% in the past month.  In the past three months there has been a stock stumble of -23.60% which is concerning, currently trading at $62.14.  With the most recent program announcements, Green Dot Corporation must take advantage of its projects and follow similar guidelines as it has in the past to implement these programs effectively.

Past Year Performance:

Green Dot Corporation is lurking around it’s 52-week low of $56.23 and is currently at $62.14, with the high being $93.00 in its 52-week range.  In the past three months there has been a stock stumble of -23.60% which is concerning of course and down -15.94% in the past 6 months, but it should not overshadow its upcoming major projects and high potential growth.  In the past year, there has been virtually no change in stock price as there has been a -0.02% decrease only.  GDOT is poised for growth, and this has been proven with its $93.00 high.



Source: FactSet
My Takeaway:

Green Dot Corporation has put up some major productive numbers the past 13 quarters as they’ve beaten guidance’s and earnings in each of these 13 quarters.  With the way trends are heading and with the way technology is advancing, the two new programs that are set to go live for GDOT in 2019, Gen Z MODE and bOS, are extremely promising as GDOT is essentially pioneers in both.  Gen Z MODE program is the most exciting and promising because of the trend of digitalization in Gen Z’ers and how this program is specifically tailored towards them.  And because this space is not yet occupied, GDOT’s pioneering will lead them to success and further promote themselves amongst the new generation.  Continuing to make strategic moves and implementing promising projects could lead the company to a bounce back and back on track to its previous positive strides.



Source: FactSet

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