Success Still in Cards for Prepaid Debit Pioneer

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Things are looking greener for Green Dot Corp.

The Pasadena prepaid debit card company last week reported first quarter revenue that beat Wall Street analysts’ estimates, signaling that much feared competition from big-bank rivals might not be as much of a threat as anticipated.

The earnings announcement sent the company’s stock up 13 percent to close at $17.81 on May 1, making it one of the top weekly gainers on the LABJ Stock Index. (See page 30.)

For the first quarter ended March 31, Green Dot reported net income of $13.1 million (35 cents a diluted share), down 4.6 percent from the year-earlier period.

Though income was lower than expected – 2 cents a share off analysts’ estimates – other metrics were on the rise. Operating revenue rose 9 percent to $154 million, beating analysts’ consensus estimate of $143 million. The number of active cards, purchase volume and customers using its direct deposit services rose during the quarter.

Prepaid debit cards work like debit cards issued by banks, except they are not linked to a checking account. Instead, users pay for their card in advance, with fees deducted by Green Dot for the service.

Green Dot had the prepaid card market cornered until recent months, when American Express, Chase Bank and others entered the market with rival products.

A telling sign that it might withstand the competition can be seen through the strength of its sales of cards at Wal-Mart Stores Inc., which generates roughly 65 percent of Green Dot’s revenues. Until other prepaid cards joined them on shelves late last year, Green Dot had an exclusive arrangement to sell its cards with Wal-Mart and other retailers. But instead of plummeting in the face of the competition, revenue from Wal-Mart increased 11 percent year over year, Steven W. Streit, Green Dot’s chairman and chief executive, said during the company’s April 30 conference call.

“I think it’s fair to say that (the first quarter) was a stress test for Green Dot,” he said. “Our results provide us with some level of comfort that the Green Dot brand means something special and important to prepaid consumers and that our company remains a growing leader in the prepaid market.”

Analysts appear to agree.

Douglas Greiner, who follows Green Dot for Compass Point Research & Trading LLC in Washington, D.C., upgraded his rating to “buy” on the news.

“The recent revenue strength suggests Green Dot’s business model is not being derailed by increasing competition,” he wrote.

Meanwhile, Mark Palmer, an analyst at BTIG LLC in New York, noted that the company’s decision to maintain its guidance for the year indicated Green Dot is adapting to the increasingly competitive marketplace.

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