This financial company is forecast to grow by more than 30% annually for the next five years.
Green Dot (GDOT)
From Cabot Stock of the Week
Green Dot (GDOT) is a little-known financial services outfit (it’s actually a bank holding company) with a great story and an amazingly broad reach. In fact, the company believes it has the most widely distributed financial services and banking franchise in the U.S.! It works behind the scenes in most cases, but that’s been enough to produce an enviable track record of growth in recent years.
The company has both a product and a platform business. On the product side, Green Dot has a slew of offerings, though its core products are simple things like bank accounts, checking accounts, prepaid (and reloadable) debit cards and credit cards with a slew of perks. The firm has an ASAP direct deposit service (quicker deposits of paychecks and government benefits), for example, as well as a 5% cash back Visa card (albeit with a $100 annual limit on the cash back).
Interestingly, the firm’s distribution network for its products is amazingly large, with more than 100,000 (!) brick and mortar locations selling its cards, as well as online and app offerings.
There’s also Green Dot’s platform business, which it refers to as banking-as-a-service, which allows partners to develop customized banking and financial offerings for their customers. And Green Dot does more than just lend its technology platform; it also provides compliance, marketing, risk assessment and money processing services to clients.
One example is Apple Pay Cash (launched late last year), which is Apple’s peer-to-peer money transfer service (similar to Venmo for PayPal) that goes along with an Apple Pay debit card account. Customers can easily transfer money digitally (which goes on the card), though there’s a maximum of $20,000 per account, and that card can be used to purchase things using Apple Pay.
Walmart is also a Green Dot customer; its MoneyCard offers cash-back benefits for customers and allows them to pay bills and send money to another Green Dot card and has the same ASAP direct deposit features mentioned above.
There’s also Intuit’s Turbo card, which allows customers to direct deposit their tax refund right onto the card. In all of these examples, Green Dot basically runs everything from charging to clearing to money transfers—and collects fees in the process.
Green Dot makes money from transaction fees, recurring monthly account fees, interchange fees and interest income. And all four areas have been growing steadily as the company expands its partnership and reach.
In the first quarter, gross dollar volume loaded on all Green Dot cards and accounts totaled $11.7 billion, up 56% from a year ago, while purchase volume from those cards came in at $7.5 billion, up 36%. Other sub-metrics like cash transfers (at-the-register reloads of debit cards, etc.) totaled 10.1 million and active accounts rose 21% to just over six million (up 21%).
Revenues climbed 25% (though, backing out an acquisition last year, that figure was 16%), while earnings lifted 40%, and management is now looking for revenues to rise about 13% this year, cash flow to rise 18% and earnings to surge 37% or so, to nearly $3 per share.
All in all, Green Dot isn’t changing the world, but its offerings are pervasive, and, thanks to its platform, the company is positioned to be one of the go-to providers of payment services to a variety of corporate clients in the future. It’s a solid story.
Investors agree as well. GDOT broke out of a big base in early 2017 and had an uninterrupted run through early November, when it tagged 65. While the stock had some ups and downs after that, it was sitting at nearly the same level in early May, having taken six months of consolidation to digest the prior upmove. Then came the Q1 earnings report two weeks ago, which topped estimates and sparked a strong gap up to new highs.
Like many stocks, GDOT has held those earnings gains (there is no selling pressure) but hasn’t built on them—yet. That will come in time, so if you like the story, and it fits your portfolio, this is a fine time to buy.
Timothy Lutts, Cabot Stock of the Week, www.cabotwealth.com, 978-745-5532, May 22, 2018