By Andrew R. Johnson
Green Dot Corp. (GDOT), whose prepaid debit cards are sold in
thousands of supermarkets, pharmacies and other stores, continues
to generate strong sales in most retailers despite a flood of new
cards from companies including American Express Co. (AXP) and
Western Union Co. (WU), Green Dot's top executive said Friday.
The assessment came amid concerns that Green Dot will lose
business as retailers add new prepaid products to their shelves.
While activations of new cards through Wal-Mart Stores Inc.
(WMT)--its biggest retail partner--took a dive in the most recent
quarter, they increased in other retailers, according to the
company.
"If it's hurting Green Dot, you certainly wouldn't know it ...
by our results," Steve Streit, chairman, president and chief
executive of the Pasadena, Calif., company, said in an interview a
day after Green Dot reported fourth-quarter results that blew past
analysts' expectations.
Several mainstream lenders, facing new regulations that have
crimped revenue in their traditional businesses, have rushed to
compete against Green Dot by offering their own prepaid cards.
Green Dot investors had been worried about the increased
competition as the deadline for reporting fourth-quarter results
neared, in part because of earlier warnings from Mr. Streit and
other executives. The company spooked shareholders in July when it
cut its earnings forecast, citing the loss of exclusive retail
partnerships and sending its shares down more than 60% in a single
day.
J.P. Morgan Chase & Co. (JPM) has rolled out a debit-card
alternative called Chase Liquid that it is offering online and in
branches. American Express, which is trying to expand beyond the
affluent customers for which it is known, has been selling a
prepaid card through retailers including Walgreen Co. (WAG), Target
Corp. (TGT) and Office Depot Inc. (ODP). In October, American
Express also rolled out a product it's billing as an alternative to
traditional checking accounts called Bluebird with Wal-Mart.
Such cards have traditionally been marketed to low-income
consumers who use traditional banking products sparingly, and are
exempt from federal regulations that cap fees banks can collect
from merchants when a customer swipes one of the cards.
Green Dot acknowledged the Bluebird product has dented sales of
the MoneyCard, Wal-Mart's proprietary prepaid card for which it
serves as program manager. While Green Dot currently has an
exclusive deal with the Bentonville, Ark.-based retailer for the
MoneyCard program, the deal doesn't preclude Wal-Mart from selling
other companies' prepaid cards.
MoneyCard activations decreased 14% in the fourth quarter from a
year earlier, Green Dot executives said Thursday during a
conference call. Mr. Streit blamed the introduction of the Bluebird
card in Wal-Mart stores and new risk controls used to screen card
applicants.
Despite the decline, new card activations through non-Wal-Mart
retail partners increased 16% in the quarter, even though many
retailers no longer exclusively sell Green Dot's namesake prepaid
card. In addition to American Express, companies including NetSpend
Holdings Inc. (NTSP) and Western Union have ramped up efforts to
get their prepaid cards on store shelves.
"In addition to the resiliency of the business against new
competition, the underlying strength in card usage was a clear
positive highlight in the quarter," Greg Smith, an analyst with
Sterne Agee, wrote in a research note Thursday.
On Thursday, Green Dot reported operating revenue increased 15%
to $137.3 million in the fourth quarter and earnings fell to 24
cents per share from 32 cents a year earlier. The earnings decline
was driven in part by higher operating expenses.
The company's shares closed up 1.5% at $13.60 on Friday. The
shares are up more than 11% this year.
"So far that [competition] has not appeared to impact us at
all," Mr. Streit said Friday. Information Green Dot has collected
suggests the American Express prepaid cards have "been an extremely
poor seller" everywhere but Wal-Mart, he said.
A spokeswoman for American Express declined to comment on Mr.
Streit's statement.
Still, Green Dot faces continued pressure. Retailers are
expected to add more prepaid products to their shelves and Green
Dot will soon face changes to its contract with Wal-Mart, which
accounts for about 60% of its operating revenue.
Sales commissions Green Dot pays to Wal-Mart on the MoneyCard
program are set to increase by about 400 basis points in May under
the terms of the companies' contract, Green Dot Chief Financial
Officer John Keatley said Thursday. Green Dot currently pays a
commission rate of about 22% of sales, according to public
filings.
In addition, Wal-Mart also has the ability to introduce
additional program managers to operate the MoneyCard program this
year, though Green Dot has a contract to work with Wal-Mart on the
program through May 2015. A Wal-Mart spokeswoman said Friday the
retailer has "no plans to introduce a new program manager alongside
Green Dot for the Walmart MoneyCard program."
The increase in commission payments, as well as competitive
factors, contributed to Green Dot issuing 2013 guidance that some
analysts viewed as overly conservative. Green Dot said it expects
adjusted operating revenue in the range of $510 million to $540
million and adjusted earnings per share of 95 cents to $1.20.
The company also expects to ramp up investments in new products,
including for GoBank, a smartphone-based bank account that it
launched earlier this month in a beta test. Unlike its prepaid
cards, GoBank is intended to appeal to more traditional banking
customers in an effort to branch out beyond underbanked
consumers.
For the most recent year, the reduced guidance Green Dot gave in
July called for annual adjusted operating revenue in the range of
$534 million to $543 million and adjusted earnings per share of
$1.29 to $1.32. Green Dot said Thursday its 2012 adjusted operating
revenue was $554.5 million and its adjusted earnings per share was
$1.37.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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