That sigh of relief you heard in Pasadena last week? It came from the offices of Green Dot Corp. after the company, the nation’s largest prepaid debit card provider, finally locked its biggest customer into a multiyear contract.

Green Dot will continue selling its prepaid MoneyCard product at Wal-Mart Stores Inc. for at least the next five years, and potentially for two more.

Investors and analysts had been waiting anxiously to see whether Green Dot would reup for the long term with the Bentonville, Ark., retail giant after the companies had been on a short-term deal since December, and the June 22 announcement of the five-year deal sent Green Dot’s stocks soaring.

Shares climbed 36 percent for the week ended June 24, closing at $20.33, making Green Dot by far the biggest gainer on the LABJ Stock Index. (See page 60.)

The huge price spike makes sense given the importance of Wal-Mart to Green Dot. Since 2007, a vast chunk of the debit card firm’s business has been tied to its dealings with the company. Green Dot’s services to Wal-Mart make up about 40 percent of its overall revenue, and the MoneyCard contract alone accounts for 29 percent of revenue.

But since late last year, the relationship between the two companies had been held together only by an eight-month extension of a previous contract, fueling investors’ and analysts’ concerns that Wal-Mart might cut ties with Green Dot and find another prepaid partner. Green Dot is a pioneer in the prepaid debit card industry, but now faces a bevy of competitors, including New York’s American Express Co., which also sells prepaid cards at Wal-Mart.

Larry Berlin, who follows Green Dot as a vice president for Chicago brokerage and investment bank First Analysis, said the duration of the new agreement gives Green Dot renewed stability and ease investors’ anxiety.

“You never know what’s going to happen when Wal-Mart puts out a request for proposal,” he said. “Everyone else in the business can apply, and someone else might have offered the price and the product that Wal-Mart likes.”

Ups, downs

Even with Wal-Mart locked up for the next five years, Green Dot faces other challenges. In February, Chief Executive Steve Streit estimated the company will see a $40 million drop in revenue and $10 million decline in pre-ax earnings by eliminating prepaid deposit certificate card MoneyPak, a product that allowed customers to load cash on their debit cards but that had also been used by gangs to launder and transfer money.

A 2013 indictment of members of national prison gang Black Guerilla Family said that MoneyPak had become one of the group’s main financial instruments.

News in February that Green Dot was axing MoneyPak sent shares tumbling, falling from nearly $20 a share down to less than $14. Shares didn’t return to the $20 mark until last week’s announcement of the Wal-Mart contract extension.

The contract is good news for Green Dot, but it does come at a big cost. The company did not disclose how much Wal-Mart will take home through the new agreement, but Green Dot’s interim chief financial officer, Mark Shifke, told analysts during a conference call last week that profit margins will be lower going forward because of the new contract, indicating Wal-Mart will get a bigger share of Green Dot’s revenue.

Under the deal the companies signed in 2010, Wal-Mart got 5.5 percent of all Green Dot revenue generated from sales through Wal-Mart. That was triple the cut Wal-Mart had received in an earlier deal.

Still, even with lower margins, Green Dot executives appear to be more confident about the company’s financial security now that they have a long-term contract in hand.

The same day the company announced the Wal-Mart deal, executives also unveiled plans to buy back $150 million in stock. Because Green Dot is a bank holding company, the plan awaits regulatory approval, which could take around 90 days.

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