Tuesday, April 21, 2020

An @MarquetteAIM Small Cap Holding: Green Dot Corporation (NYSE: GDOT, $27.16): “Green Dot-dot-dot (…)?” by: Thomas Martinez, AIM student at Marquette University

Green Dot Corporation (NYSE: GDOT, $27.16): “Green Dot-dot-dot (…)?”
By: Thomas Martinez, AIM Student at Marquette University

Green Dot Corporation - Wikipedia
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 an American financial technology company and bank holding company, offering online banking services to consumers and payment processing solutions to corporate clients.
• Green Dot Corporation finally announced its long awaited hiring of a new CEO, Dan Henry.
• Financial backlash on the consumer as a result of the COVID-19 outbreak represents an opportunity for recapturing fees and revenue from prepaid debit cards.

Key points: Green Dot Corporation announced on March 25, 2020 that it had appointed Dan Henry as its Chief Executive Officer, replacing founder Steve Streit. The announcement resulted in a positive market reaction as the share price increased from $21.07 on the 24th, to $23.83 the day of, and further to $26.66 the following day. This announcement was followed by a letter from hedge fund activist investor, Starboard Value, which stated its support of the hiring of Henry whom they believe can “lead the transformation at Green Dot and focus on reinvigorating growth and improving profitability.”

With the explosion of filings for unemployment benefits, the impact that the COVID-19 outbreak has had on the average American is sure to have lasting effects. As unemployment and layoffs, due to the lack of business being conducted, increases this means that the credit score and viability of many consumers are likely to decrease as well. This could lead to loss of bank accounts and the loss of access to bank-sponsored debit and credit cards for many in the United States. This is where the legacy prepaid debit and credit cards that Green Dot offers comes in since they are offered regardless of the quality of one’s credit and will allow individuals to continue to make online purchases.

Green Dot’s hold on the prepaid card infrastructure also serves to position itself to capitalize on the success of other prepaid card offerings and pure-play online banks who depend on Green Dot loading stations to deposit cash directly onto their cards. Each transaction that does not include a Green Dot-issued card requires a transaction fee that goes directly to Green Dot.

What has the stock done lately?
A recent addition to the Portfolio, the comeuppance of the COV-19 outbreak has been the catalyst of the demise of many stocks contained within the AIM Portfolios, nearly claiming GDOT after its share price decreased to an astounding $16.98 from market selloffs. The worst seems to be behind GDOT as news of Dan Henry’s hire seemed to weather the storm and restore confidence in performance moving forward.

Past Year Performance: GDOT has decreased 56.05% in value over the past year, which sounds like an opportunity if there ever was one. Aside from decreases in management’s forward guidance, this company is the same company that is has been and then some. Since being added to the AIM Small-Cap Equity Portfolio at a price of $29.81, its stock hit a 52-week low of $16.98 (a 43.0% decrease) but has rebounded admirably to its current price of $27.16, a proper reflection of market sentiment.

Source: FactSet

My Takeaway
With the worries over the future of management now at bay, with the hiring of Henry as CEO in place, Green Dot is now poised to continue operations and continue to innovate its product offerings and contracts. While COVID-19 has hit Green Dot shares hard, GDOT possesses products that operate in an industry that thrives in a recessionary environment and should mitigate losses that resulted from lost productivity and progression in the development of the new products mentioned in its investment thesis. Once the outbreak passes, Green Dot’s growth is likely to be stalled as long as consumer confidence remains low and begins to return towards normal levels. It is recommended that GDOT continue to be held as the potential for post-outbreak performance remains very much intact.

Source: FactSet