The summary of the Green Dot Corporation (NYSE:GDOT) Q1 2013 earnings report had to be that the company was shaking off the increased competition in the prepaid debit card arena. The long-term market leader famously plunged 50%% back in July of last year after forecasting that earnings would be greatly impacted by increased competition primarily from the Bluebird Card via American Express Company (NYSE:AXP) at Wal-Mart Stores, Inc. (NYSE:WMT) stores.
Ironically, the leading independent prepaid card provider for the underbanked has been able to fend off a good portion of the increased competition not only from American Express Company (NYSE:AXP), but from numerous other banking entities including Chase. The stock has now rebounded to over $18 from the lows below $10 in the darkest days last year. Are investors too late to buy the stock now?
Better than expected quarter
Investors do need to be cognizant that while the quarter was better than forecasted, Green Dot Corporation (NYSE:GDOT) did take a hit from the added competition. Revenues were only up 8% over last year causing earnings to drop 10%. The company did make solid progress in moving towards customers with higher average spend, more reloads, direct deposit, and most importantly more revenue per card. This move helped limit the expected impact to margins.
Instead of taking a hit on margins, the company actually saw them improve sequentially as the low profit customers were purged from the system or have moved to the competing products.
A divergence in key metrics helps align the company for profitable growth in the future. The number of cash transfers jumped 11% over the first quarter of 2012 while the number of active cards declined slightly. The increase in gross dollar volume and purchase volume were also positive, which is good considering the active cards dropped.
GoBank remains on track
Some of the excitement on the stock from the bounce off $10 is the summer release to production of the mobile bank account product called GoBank. The product appears to be successful in beta testing leading to opening it up for full production use. The company plans to demonstrate the latest developments at the Finovate financial technology conference on May 14. Considering this product could be a revolutionary home-run for the company, interested investors should tune in to see if anything market moving is announced.
Update on competition
In general, Green Dot Corporation (NYSE:GDOT) provided unchanged guidance for the rest of the year suggesting the competitive threats remain intact. The initial lack of success by the American Express Company (NYSE:AXP) product could turn around with some minor updates or the Total System Services, Inc. (NYSE:TSS) purchase of NetSpend Holdings Inc (NASDAQ:NTSP) could spark a stronger rival.
The Bluebird product by American Express Company (NYSE:AXP) entered the Wal-Mart Stores, Inc. (NYSE:WMT) stores in mid-October last year and company was still able to see 11% growth due to direct deposit strength.
In the non Wal-Mart Stores, Inc. (NYSE:WMT) business, Green Dot Corporation (NYSE:GDOT) only saw 2% revenue growth as it faced continue competition from NetSpend Holdings Inc (NASDAQ:NTSP) along with the Chase, PayPal, Western Union, Blackhawk, and others including numerous celebrity options including Justin Bieber. All of the data suggests minimal impact with the company garnering a vast majority of new accounts. If anything, the decision to reject questionable customers at a much higher rate had a greater impact.
Considering Bluebird is only a very small division of American Express Company (NYSE:AXP), the results of that card can’t be as easily compared to Green Dot Corporation (NYSE:GDOT). NetSpend Holdings Inc (NASDAQ:NTSP) reported strong results for Q1 2013 as it took over the sole GPR card that can be ordered through the TurboTax software from Intuit. The company saw diluted earnings jump to $0.19 this quarter from $0.13 last year. Analysts expect Netspend revenue to surge 20% this year and another 15% next year to reach $484 million Green Dot could hit $580 million of revenue next year suggesting the $1.1 billion valuation for Netspend leaves a ton of upside for Green Dot Corporation (NYSE:GDOT).
With the pending purchase by Total System Services, Inc. (NYSE:TSS), the market will lose a direct competitor for comparative analysis purposes.
With NetSpend Holdings Inc (NASDAQ:NTSP) purchased for double the current valuation of Green Dot Corporation (NYSE:GDOT), the stock doesn’t appear over bought at these levels. While the company has faced several headwinds limiting growth for the year, the profit picture has remained strong and the balance sheet even more solid.
If Green Dot Corporation (NYSE:GDOT) can hit a home-run with the mobile bank, GoBank, this stock could be a huge winner as 2013 progresses.
The article Green Dot: Shaking Off the Competition originally appeared on Fool.com.
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