Inexperienced Dot, fintech companion of Apple and Amazon, is undervalued regardless of development: CEO
Dan Henry, CEO of Green Dot
Source: Green Dot
Green Dot, a fintech player who is often overlooked when compared to bigger competitors PayPal and Square, has gotten a rift recently. Its share price rose 140% over the past year.
Still, the stocks have ample headroom as the company opens a digital bank account for low- and middle-income Americans and signs more partnership agreements, said CEO Dan Henry, who was hired in March to lead a turnaround for the company.
Green Dot began two decades ago as a pioneer in prepaid debit cards that allowed people without a bank account or credit rating to use plastic. After acquiring a small bank supported by the FDIC, Green Dot became the de facto partner for technology giants like Apple, Uber and Amazon, providing the regulated bank rails and deposit accounts for products like Apple Cash.
Now, under Henry’s leadership team, Green Dot plays a role as the primary banking account for the 100 million Americans underserved by traditional banks. Startups like Chime have made progress in this area. Green Dot’s market cap of roughly $ 3 billion is dwarfed by most of its competitors, including Chime’s private valuation of $ 14.5 billion.
“We’re the after-Christmas sale of your life,” said Henry in a Zoom interview. “Green Dot’s assets cannot be compared to any fintech company in the country. They are grossly undervalued and I think our company is grossly underrated.”
Green Dot’s shares rose 9.5% on Wednesday in a broad rally in bank stocks.
In a way, Green Dot’s strategy mirrors that of another financial firm at a crossroads: Goldman Sachs. Both companies are trying to take advantage of the fact that they own banks but do not have expensive branch networks. Both develop digital banking products for a direct customer business as well as partnerships to become the financial installation for new offerings from well-known brands. This step is known as banking-as-a-service.
Prior to Henry’s arrival, Green Dot struggled when users of the company’s prepaid cards migrated to newer digital solutions like Square’s Cash app and PayPal’s Venmo. In 2019, the company was forced to lower its guidance twice, and its stock fell from a high of $ 82.06 to below $ 25.
This eventually led to the arrival of activist investor Starboard Value, a New York-based hedge fund, and the installation of Henry, who co-founded a European payments company and spent six years as CEO of a Green Dot rival called NetSpend. Henry said he had a good relationship with Starboard.
“The share price has doubled since I’ve been here,” he said. “I think they’d probably like to see at least one more doubling.”
Like its more noticeable competitors, the Green Dot has benefited from the effects of the coronavirus pandemic, including government economic reviews and unemployment benefits that boosted customer accounts, and the overall accelerated adoption of digital payments.
To keep the turnaround on track, Henry needs to continue improving Green Dot’s financial performance, expanding the company’s partnerships, and successfully launching the new digital bank called GO2bank.
Henry believes the company can make $ 10 per month from each customer if Green Dot can get users to sign up for a direct deposit. The service, which launches Wednesday, brings many of the features popularized by other fintech accounts, including faster access to paychecks, higher interest rates, and up to 7% cashback on certain purchases.
“Unless we have a corporate office with a dining room and marble floors and all that crap, all we can do is fix our fixed costs, and every one of those customers that comes in makes us $ 10 a month, which drops the bottom line,” said Henry. “We’re going to grow our profits and don’t have to find ways to nickel them.”