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NetSpend in Play: Green Dot or Capital One could be Buyers

Adam Rust's picture

Posted August 25, 2011

Rumors are circulating that NetSpend (NTSP) will soon be purchased by one of its competitors.

Shares of NetSpend fell below $5 last week. The Federal Reserve has placed an enforcement order upon NetSpend's largest share holder.

Analysts think that Green Dot and Capital One are the entities most likely to want to bid for their shares. NetSpend

Green Dot's Great Quarter

Adam Rust's picture

Posted August 3, 2011

Green Dot reported some fantastic results on Thursday.

In its 10-q, released on Thursday afternoon, Green Dot revealed incredible growth. More people using their prepaid

cards, and they are loading more dollars on to them, too.

Consider these metrics and the comparison with the same quarter one year ago:

  • 1.82 million new cards (up 23 percent)
  • 8.28 million cash transfers (up 29 percent)
  • They now have 4.1 million active cards (up 27 percent)
  • $3.6 billion in new loads (up 53 percent)

More people finding more ways to use their cards. Nothing could speak more clearly about the surging growth of the prepaid model in general and Green Dot's execution on that promise.

Bank Notes: Green Dot, Chase, Payday in California

Adam Rust's picture

Posted May 24, 2011

Green Dot is still doesn't own Bonneville Bancorp. In February 2010 (16 months ago), Green Dot agreed to buy Bonneville Bancorp for $15.7 million. Bonneville is a very small bank in Provo, Utah. Green Dot is buying the bank with cash. There was some initial upheaval about the transaction (from me) that this was a shadow transaction that allowed Wal-Mart to buy a charter. Steve Streit settled those concerns through a very direct outreach to advocates. Some advocates took the step of sending a letter to the Federal Reserve which rescinded their initial protest against the acquisition. Comments closed last summer, but the Federal Reserve still has not

Big Banks Undecided on PrePaid Strategy

Adam Rust's picture

Posted February 23, 2011

Big banks have already said that they intend to enter the prepaid card market, but their success or failure is far from certain and could hinge on how they frame the purpose of the entire space.

Banks are no longer going to offer free checking willy nilly. You will have to have a hefty deposit account, or use other services that generate enough revenue to justify the costs to the bank. It is the

same with branches.  Banks are closing branches in low-income neighborhoods.

The writing is on the wall. A relationship with a local full-service retail

bank branch is no longer an essential element for every American household. In the future, it may be something that we think about quite differently. It may be something that becomes a distinguishing factor between the middle class and everyone a few rungs below them.

Green Dot Wins Treasury Contract

Adam Rust's picture

Posted January 13, 2011

Green Dot will manage the US Department of the Treasury's new debit card program, according to an announcement released this morning.

The new account will give Green Dot 600,000 new accounts. Green Dot already has 3.3 million customers for its card.

Treasury is hoping to save a lot of money. Printing a paper check costs about $1. Sending a payment through direct deposit costs about ten cents. Treasury will spend $1.5 million to make the switch, but that cost will easily be recouped and should result in a net savings of more than $3.5 million for each round of deposits sent to the new recipient class. The new accounts will be used to send tax refunds.

This should be a great deal for consumers that still haven't moved from check cashers over to a direct deposit-enabled debit card.

Treasury Debuts new Taxtime Card This Week

Adam Rust's picture

Posted January 10, 2011

The US Department of the Treasury is set to announce the private partners that will roll out its new debit card aimed at unbanked consumers that need a place to deposit their tax refunds.  Under the pilot, Treasury hopes to add more individuals to their Direct Express platform.

The Treasury Department indicated that this plan was in the works last September. The update is that they will

Unbanked Notes

Adam Rust's picture

Posted December 8, 2010

  • Green Dot sold 4.27 million class A common shares, pricing at approximately $61 per share, on Tuesday. The sale was their second public offering this year. They sold about 9 million shares in June, with a price of about $34.
  • A former Jackson Hewitt service manager was convicted this week on charges of falsifying the tax returns of her clients. The U.S. Justice Department said that she filed 20 returns that "she knew were false." The changes cost taxpayers $165,000.
  • In their most recent annual report, EZ Corp (EZ Pawn) reported that revenues increased 22.3 percent. Their auto lending segment, which derives revenues from fees on car title lending, increased revenues sixfold. Car title lending is only legal in about half of the US. EZ

NetSpend Trips, Green Dot Doesn't

Adam Rust's picture

Posted November 10, 2010

This week, Green Dot and NetSpend announced results for their third quarter earnings.

People have high expectations for companies with an established foothold in the prepaid card market. Every year, analytics firms publish estimates that predict more than 100 percent growth in reload volume, consumer accounts, and revenues. Every year, prepaid companies make reports that they have realized these gains.

Green Dot followed suit on Tuesday with some positive news. They more than satisfied investors when they reported thirty cents in EPS.

NetSpend (NTSP) did well, but not well enough. They paid off some of their debt with proceeds from their IPO. They managed to add 400,000 new accounts. Almost one in three cards is now direct deposit-enabled, compared to only 25.7 percent just one year ago. Gross dollar volume jumped by 33 percent year-over-year.

For most companies that would be a "door-blowing" report. Unfortunately, NetSpend has some high standards to meet. This is a company with a price-to-earnings ratio of 68. Compare that to the market as a whole, where the average P/E is more like 16.

Their shares dropped almost 8 percent before regaining a bit later in the day. Analysts though that they would report about $278 million in revenue, but NetSpend fell short.

Even if the numbers aren't perfect, they aren't bad, either. NetSpend still hasn't resolved some of its issues, though. They haven't resolved their situation with MetaBank. They've announced intentions to add three new bank partners. They have non-binding letters of intent with Bancorp Bank (TBBK) and Block Bank (HRB). The 10-q says that new relationships are at least 90 days away.

The lack of an answer with respect to new bank relationships is a problem, and it comes at the wrong time. NetSpend's 10-q contains this gem:

the most significant increases in the number of our active cards and our GDV typically occur in our first fiscal quarter as a result of consumers acquiring new cards and loading federal tax refunds onto their cards during tax season. In addition, the number of our active cards and our GDV typically increase from our third to fourth fiscal quarters as a result of increases in holiday employment and holiday-associated consumer spending.

That means that NetSpend is going to enter into the tax refund season without a long-term answer for their card issuer. None will replace

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