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Green Dot Corp. saw its shares plummet Thursday morning after its chief executive late Wednesday surprised stock analysts with a plan to invest $60 million later this year in initiatives aimed at expanding the company’s reach into new markets for banking services. At mid-morning, the Pasadena, Calif.-based payments company was trading at just over $44 per share, down about 30% for the day.
The new investment, set for the second half of 2019, will be poured into marketing, technology, and operational plans aimed in part at capturing young adults, company officials told analysts. Green Dot has already launched a wide range of so-called banking-as-a-service programs, including direct-deposit services, that have expanded the company’s market beyond its traditional prepaid card business. These include support for products from such major clients as Apple Inc. and Walmart Inc.
But while the immediate drop in Green Dot’s stock price reflects the market’s fear the initiative will pressure the company’s earnings, not all analysts agree. “We believe Green Dot has strong assets and technology and visibility such that it has a good likelihood of success,” said Robert Napoli, an analyst at William Blair & Co., in a research note. “[T]he $60 million marketing investment is very reasonable given the size of the opportunity as evidenced by valuations associated with various challenger/digital banks.”
He estimates Green Dot’s revenue from banking-as-a-service products hit $18.8 million in the first quarter, up from $14 million in the same quarter last year and from $4.7 million two years ago. The foundation of the company’s banking-as-a-service business is its Green Dot Bank, which allows Green Dot to issue cards directly rather than through partners.
News of the big investment, along with the market’s strong reaction, tended to obscure what was a reasonably good quarter for Green Dot. The company reported $340.5 million in total operating revenue, up 6% year-over-year.
