Wednesday, November 11, 2020

A Small Cap Equity holding: Green Dot Corporation (GDOT, $55.46): "Nothing but Green Ahead!" by: Rishi Kumar, AIM Student at Marquette University

 Green Dot Corporation (GDOT, $55.46): Nothing but Green Ahead!

By: Rishi Kumar, 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 (This is an example, you would add your own content below)

• Green Dot Corporation (NYSE: GDOT) is a financial technology company that provides prepaid cards, debit cards, checking accounts, secured credit cards, payroll debit cards, consumer cash processing services, wage disbursements, and tax refund processing services.

• GDOT recently released their Q3 2020 earnings report where they had revenues of $969.48  million for the 9 months ended September 30, 2020, which was up from $859.29 million for the same period in 2019 which represents an increase of 12.8%. However, Year-over-Year net margins have fallen 6.6% from 2019 to 2020 for the 9 months ended September 30.  GDOT also announced multiple partnerships with companies like Intuit and Kabbage which could lead to further revenue growth.

• On May 26, 2020, Green Dot announced updated features and programs for the Walmart MoneyCard reloadable debit card program such as a 2% APR yield on money saved in the integrated savings account and the ability to deposit cash for free to your card from another existing account.

• Management has set a full-year non-GAAP EPS guidance between $1.95 – $2.00 which is an increase from the 2019 full-year EPS of $1.91.

• Green Dot’s ability to create new partnerships while simultaneously increasing revenues with existing customers places Green Dot in an optimal position to capitalize on long-term growth strategies.

Key points: Green Dot has done extremely well during 2020 as it has been able to increase revenues in three out of four of its segments this year. The brunt of this growth has come from the Card Revenues and Other Fees segment which experienced a 24.7% growth from 2019 to 2020 for the 9 months ended September 30th. Net and operating margins decreased due to an increase in sales and marketing expense. Although this seems adverse to performance, management had expected this to occur given in 2019 when Walmart renewed its MoneyCard Program, the sales commission fee percentage paid by Green Dot increased in the new deal and management had given a negative outlook for sales and marketing expense. Management has reported that they have already seen a recovery of 100 basis points for operating margins in Q3 of 2020 which was attributed to the growth of the Banking as a Service (BaaS) business.

Specifically looking into Q3 of 2020, Green Dot incurred a Net Loss of $2.99 million dollars due to the negative impact from the Covid-19 pandemic. The recent quarterly filing states that starting in March the pandemic had negatively affected spending levels and decreased the volume of transactions. In addition, Covid-19 has also increased the rates of customer disputes and operational disruptions which have both resulted in higher transaction losses Year-over-Year. Management does not believe that this is a long-term issue and expects things to normalize in 2021. GDOT also carries ample liquidity with a $100 million dollar revolver as well as over 2.1 billion dollars of unrestricted cash; therefore, GDOT is in great financial health and doesn’t face any liquidity risk in the near future.

In terms of current developments and future outlook, things look very bright for Green Dot. In the recent earnings call, Dan Henry, the CEO of Green Dot, highlighted the recent announcement that the BaaS business segment’s new partnerships of both Intuit and Kabbage. Green Dot is set to kick off a QuickBooks Cash Account as well as a Kabbage Checking account. These new partnerships will allow Green Dot to connect with over 30 million small businesses which present a very big growth opportunity for the BaaS segment as they will now be able to provide a multitude of banking services to millions of SMBs. 

In addition to Intuit and Kabbage, Green Dot also announced on October 27th that they had invested and partnered with Gig Wage, a fast-growing startup focused on building a financial ecosystem for freelancers and independent contractors. Green Dot will serve as the infrastructure bank partner to Gig Wage to ensure that users receive reliable banking solutions. Once again, this highlights a huge growth opportunity given the number of freelancers in the gig economy is set to grow 51% by 2027. Both of these developments pose tremendous growth opportunities for Green Dot given that they now have the capability to provide services for millions of new businesses and will be able to move into different verticals within the BaaS segment which was highlighted by their new partnership with Gig Wage.

What has the stock done lately?

Over the last month, the share price for Green Dot has declined 6.43% with a high of $64.60 and a low of $52.78. Since the release of the Q3 earnings call, shares have risen 4.81% which does not seem exceptional considering the 1-year performance of GDOT. However, this does highlight the positive market sentiment surrounding Green Dot and the optimistic future outlook of the company.

Past Year Performance: In the last 12 months, Green Dot’s stock has risen 94%. The 52 week high and low was $64.97 and $14.20 respectively; however, this is attributable to the high growth capacity of the stock and there is a multitude of remaining growth opportunities. The stock has unsurprisingly outperformed the vast majority of its peers; however, this should not take away from the fact that the best days of the company are yet to come.

Source: FactSet

My Takeaway

Green Dot Corporation is looking at a very bright future based on numerous factors. Their partnerships with Intuit, Kabbage, and Gig Wage provide them with over 30 million potential clients, which should add to their top-line revenue growth as well as scalability in their business model. In addition to their expanding client portfolio, GDOT not only has a strong balance sheet that has ample cash and a healthy amount of leverage but also a management team determined to see the business grow aggressively in the future. 

Source: FactSet