Green Dot says it has renewed its agreement with Wal-Mart for at least the next five years and for perhaps as long as the next seven years. Having settled a question that has been hanging over the company for at least the last year, Green Dot will [finally] return some cash to its shareholders.
For eight years, Green Dot has been either the program manager or the issuer of Wal-Mart's MoneyCard.
As if to underscore the weight of the moment, Green Dot CEO Steve Streit offered the gem that "Sam Walton is my favorite American entrepreneur."
Wal-Mart and Green Dot will continue to share the revenues from the MoneyCard.
Recently, Green Dot reported that Wal-Mart's contract made up sixty percent of the company's revenues. As Wal-Mart had negotiated for lower pricing, those dollars were at lower margins. But even if other activities that make more on a per dollar basis, Wal-Mart is still a profitable relationship. I had heard some analysts pillory Streit for his faith in the agreement. At one point, Streit even went so far as to suggest that working with Wal-Mart was something akin to a social mission.
For a long time, Green Dot has been sitting on a lot of cash. At the end of 2014, the company's balance sheet held more than $700 million in cash and short-term investments. Similarly, Green Dot has never paid a regular dividend. But as soon as it gets regulatory approval, the company will begin a $150 million share repurchase program. I think that means that Green Dot is suddenly feeling very secure about its future. But don't take it from me. Take it from Steve Streit himself:
"The message that the buyback sends is that we have come through a period of unbelievable uncertainty, with competition and price compression and what will happen with risk control and...American Express."
"But now, the waters have calmed. There is certainty and predictability and now that we look at this renewal, with this buyback we now have more comfort with the long-term sustainability of our enterprise."
"You are seeing comfort and more confidence in the voice of the CEO."
Holding on to all of that cash was something of a statement about the prepaid industry's self-concept. It said that the future was unknown, that even if revenues continued to grow, the model of prepaid itself was still not proven. Green Dot had enough liquidity (cash and cash equivalents) to cover more than one year's worth of operating expenses. But Green Dot now feels differently - and that says something that all of the bright press from Aite Group did not.
Pymnts.com, a trade journal in the payments industry, had predicted doom for Green Dot's relationship with Wal-Mart. "At the end of its current contract with Green Dot,"Wal-mart is expected to either not renew or vastly restructure the arrangement to cut Green Dot's commission rate."
Publicly-traded companies are supposed to report if they are going to experience a substantial threat to their ongoing business prospects. If Wal-Mart had negotiated a hard bargain, then Streit should have mentioned that fact. But when several analysts asked the same question several different ways, Streit was always upbeat. He called it a simple agreement that allows both companies to share the upside of the business. Thus, what is notable about that is what was not said. If Streit was playing it right, and there is no reason to believe that he would be anything but honest, then Green Dot has managed to secure its future on reasonable terms.