Green Dot Corporation (NYSE:GDOT) is increasingly shifting to a Banking as a Service company for some of the largest platform companies in the world. For now though, the stock will feel the impact from declining active accounts and profits in the historical Consumer Services reliant on offering low value services to Walmart (WMT) customers. For this reason, the stock is a 2021 story to avoid for now.
Image Source: Green Dot website
Short-Term Pain
Green Dot is slowly shifting from a goal of offering financial services to customers lacking access to traditional banking accounts to becoming a financial technology leader with a mission to power the banking industry's branchless future. The Walmart deal has long ruled the financial prospects of the firm and 2020 is the latest year to take a hit from the large retailer wanting a larger portion of the rewards.
The stock only has a $1.3 billion market cap while 2019 revenues are targeted up at $1.06 billion with adjusted EBITDA at $242 million and an EPS of $2.73. The problem here is the projected outlook for 2020 is disappointing.
Unfortunately for shareholders, the lower interest rates and the 150 basis point reduction in margins associated with the Walmart MoneyCard contract along with higher SG&A expenses from investments in BaaS have Green Dot forecasting a $65 million hit to 2020 EBITDA. The burgeoning fintech would only generate ~$180 million in EBITDA next year.
The reality is that $180 million in adjusted EBITDA next year would warrant a higher stock price than a $1.3 billion market cap, if Green Dot can turn around the trends here. The fact that the Platform Services business is growing 26% to offset the declines of the Consumer Business to where similar growth rates in 2020 would place revenues generally equal heading into 2021 provides a lot of
