Green Dot Corp. (GDOT, Financial) is one of the original fintech companies that was an innovative leader in prepaid debit cards. The company’s proprietary technology enables faster, more efficient electronic payments and money management. It is also a chartered retail bank that offers a broad set of financial products to consumers and businesses, including debit, prepaid, checking, credit and payroll cards, as well as money processing services, tax refunds, cash deposits and disbursements.
The company’s banking as a service (BaaS) platform enables a growing list of the country’s most prominent consumer and technology companies to design and deploy their own customized banking and money movement solutions for customers and partners in the U.S.
Walmart Inc. (WMT, Financial) is the largest distributor of Green Dot products and represents approximately a quarter of total revenue. This has primarily been a prepaid debt card called Walmart MoneyCard, but now also includes a traditional debit card linked to a deposit institution.
Founded in 1999 and headquartered in Austin, Texas, Green Dot has served more than 33 million customers directly and now operates primarily as a “branchless bank” with more than 90,000 retail distribution locations nationwide. The company has a market capitalization of $1.1 billion and generated over $1.4 billion in revenue last year.
Financial review
Green Dot reported second-quarter results on Aug. 4. Revenue declined 2% to $362.8 million and adjusted Ebitda was $67.5 million compared to $62.9 million last year, which represented an increase of 7%. Non-GAAP net income was $40.4 million for the quarter, compared to $37.8 million for the second quarter of 2021, which was also an increase of 7%.
The decline in the general use of prepaid cards has negatively affected the company’s revenue growth as active accounts continue to decline. The number of active accounts at the end of the quarter totaled 4.6 million, which was down from 6 million a year ago. Gross purchase volume declined 24%, with the consumer segment declining approximately 29%.
The balance sheet is strong with $776 million in cash and equivalents and no traditional long-term debt. The balance sheet contains billions of dollars in investment securities, but those are dedicated to customer deposits and settlement obligations.
The company is now focused on its banking business and BaaS platform for future growth. It recently announced a multiyear renewal with a key BaaS partner, which builds on a multiyear partnership. Green Dot indicated that pipeline activity continues to improve.
Valuation
Company guidance calls for an increase in revenue of approximately 2% and adjusted Ebitda in the range of $230 million to $240 million. Full-year non-GAAP earnings per share is expected to be between $2.35 and $2.49, which would be an increase of 10% year over year at the midpoint.
Consensus analyst earnings estimates are $2.45 for fiscal 2022 and $2.66 for 2023. That puts Green Dot in the single-digit price-earnings ratio club based on future estimates.
The company does not currently pay a dividend, but does actively repurchase shares.
The GuruFocus discounted cash flow calculator creates a value of approximately $30 per share using 2022 estimates of $2.45 and a modest 5% long-term growth rate. Share repurchases for the first six months of 2022 totaled $44.1 million.
Guru trades
Gurus who have recently purchased Green Dot stock include Paul Tudor Jones (Trades, Portfolio) and Caxton Associates (Trades, Portfolio). Gurus who have reduced or sold out of their positions include Jim Simons (Trades, Portfolio)' Renaissance Technologies.
Conclusion
Green Dot faces some secular challenges related to its prepaid debit cards and reliance on Walmart, but those difficulties are likely priced into the stock at this point. The focus on free cash flow enhancement will likely pay off for shareholders over time, particularly when considering the low valuation levels the company is currently trading at.
