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NetSpend's IPOreport -- GreenDot is better

|Includes:AXP, DFS, FIS, GDOT, MA, NetSpend Holdings (NTSP), V, WMT
NetSpend Holdings (NASDAQ:NTSP), reloadable debit cards
$204mm IPO, market cap of $966 at price point mid-point of $11

Financial analysis for NetSpend

SUMMARY
88% of IPO proceeds to selling shareholders, who have already left the company with a negative book value

Compare: NetSpend with Green Dot (NYSE:GDOT)

Conclusion:  if an investor wants to participate in the reloadable prepaid debit card business, GDOT appears to be the better investment vehicle.

Growth rate comparison: NTSP’s growth rate appears to be moderating while Green Dot’s appears to be accelerating, in terms of sales, profits and number of active cards.

P/E comparison:  at the IPO price it appears that GDOT is better positioned and is generating more of a growth trend than NTSP

Competitive impact on margins:  GDOT”s profit margins were double those of  NTSP’s for the third quarters.  That means sales dollar growth for GDOT is worth more than that of NTSP.

BUSINESS
. NTSP is a leading provider of General-Purpose Reloadable prepaid debit cards (GPR cards), and related alternative financial services to underbanked consumers in the U.S.
. Primarily focuses on the estimated 60 million underbanked consumers in the U.S. who do not have a traditional bank deposit account or who rely on alternative financial services.

AGREEMENTS

Has agreements with FDIC-insured depository institutions that serve as the issuers of NTSP MasterCard- and Visa-branded GPR cards. NTSP cardholders may use their GPR card to make purchase transactions at any merchant that participates in the MasterCard, Visa or PULSE networks and to withdraw funds from participating automated teller machines, or ATMs.

METABANK, strategic partner
. About MetaBank (NASDAQ:CASH) $100mm market cap: operates in the Iowa counties of Adair, Buena Vista, Dallas, Guthrie, Pocahontas, Polk and Sac, and the South Dakota counties of Brookings, Lincoln and Minnehaha.
. MetaBank, which has been one of NTSP’s issuing banks since 2005, is a federal savings bank and a leading issuer of prepaid debit cards. In January 2010, NTSC agreed to promote MetaBank as a preferred issuing bank and MetaBank agreed to promote NTSCs as a preferred program manager.  In order to further align strategic interests with MetaBank, NTSCe also acquired 4.9% of the outstanding equity interests in Meta Financial Group, Inc., MetaBank's holding company.

SEASONAL
. Quarterly operating revenues fluctuate as a result of certain seasonal factors affecting NTSP’s Gross Dollar Volume (NYSE:GDV)and the number of active cards.
. For example, the most significant increases in the number of active cards and GDV typically occur in the first fiscal quarter as a result of consumers acquiring new cards and loading federal tax refunds onto their cards during tax season.
. In addition, the number of active cards and GDV typically increase from the third to fourth fiscal quarters as a result of increases in holiday employment and holiday-associated consumer spending.

PRIVATE EQUITY CONTROLLED
. Since May, 2004 by Oak Investment Partners
. Which accounts for NTSP’s negative book value, drained out by the private equity controlling interests.

COMPETITION
Open-loop prepaid debit cards through retail and online distribution, including Green Dot Corporation, Account Now, Inc. and Blackhawk Network Inc.
. Transaction processors, such as First Data Corporation, Total System Services, Inc., Fidelity National Information Services and Galileo Processing, Inc., have prepaid platform capability and are increasingly in direct competition with NTSC for prepaid program management opportunities with large distributors.
. Large retailers such as Wal-Mart seeking to integrate more profitable financial services into their product offerings.

NTSP also anticipates increased competition from alternative financial services providers who are often well-positioned to service the underbanked and who may wish to develop their own prepaid debit card programs.
. For example, in the past year NTSC retail distributors Pay-O-Matic, Inc. and Checksmart Financial Company have both begun to distribute their own GPR cards through their stores.
. While the increased desire of banks, retailers and alternative financial services providers to develop successful prepaid debit card programs frequently creates new business opportunities for NTSC, it could also have an adverse effect on NTSC’s business, including through increased price competition and loss of distributor relationships

USE OF PROCEEDS
$21mm from sale of 2.2mm shares shares.  Shareholders intend to sell 16.3mm shares
. Portion to repay debt
. Balance for general corporate purposes

Financial analysis for NetSpend


Disclosure: none
Stocks: NTSP, GDOT, V, FIS, MA, DFS, AXP, WMT