By:
Thomas Martinez, 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 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
