Some prepaid industry executives speculated this week at the Prepaid Card Expo in Las Vegas that an established company soon would be in a position to announce an initial public offering. That happened sooner than expected, as Green Dot Corp. today announced plans to generate up to $150 million by selling company stock through an IPO.
The move could put the Monrovia, Calif.-based prepaid card company in a good position for future acquisitions, says Gil Luria, an analyst with Wedbush Securities in Los Angeles. "A lot of times when a market leader in an emerging category goes public, it's to see if they can use the capital they raise in the IPO to grow even faster," he says.
Lauria believes Green Dot could reach its goal of generating $150 million because the market it showing some stability compared with early 2009, when companies were holding back on IPOs. "If a company wants to raise money and it feels this is the right time, it's not surprising that they proceed right now," he says.
Green Dot is in the process of acquiring an unnamed bank holding company and its subsidiary commercial bank, but the company did not guarantee when, if ever, it would complete the acquisition, according to its filing with the Securities and Exchange Commission.
Established prepaid companies are in the perfect position to initiate prepaid-industry consolidation in the next few years, Kenneth Goins, CEO of Prepaid Solutions Inc., said at the Prepaid Card Expo. "We're starting to get a lot of players in the industry," he said. "People are starting to bump into each other at [these conferences] and talking," which could lead to consolidation. Goins said there were several companies likely for an IPO but declined to name them.
Green Dot did not reveal an initial stock price in its filing. The company, however, noted that investing in the company "involves a high degree of risk," according to the preliminary prospectus filed with the SEC.
Though Green Dot generated $234.8 million in revenue and net income of $37.2 million for its fiscal year ended July 31, it warned growth rates might decline. Continued growth depends on the company's ability to "attract new users of our products, to expand our reload network and to increase our revenues per customer," the company noted in the filing.
Green Dot also warned that the loss of operating revenues from its four largest retail distributors, including Wal-Mart Stores Inc., "would adversely affect our business." Wal-Mart accounted for approximately 64% of Green Dot's total operating revenues for the three months ended Oct. 31, 2009.
Besides operating a highly competitive market, Green Dot acknowledged that any future regulatory changes also could disrupt its business model.
Despite the risks, Green Dot is in a good position for future growth as the credit card industry struggles to adapt to the Credit Card Accountability, Responsibility and Disclosure Act, according to Brian Riley, a research director in the bank cards practice at TowerGroup in Needham, Mass.
"As the credit card industry toils with adapting to the CARD Act and debit card issuers contend with barriers on their [nonsufficient funds] fees, the prepaid industry will certainly benefit by its ability to provide a market-driven solution for cardholders," Riley says.
Green Dot's IPO also would benefit other industry players because SEC reporting requirements would force the company to open up some of its financials, Riley says. "The industry will [have] a deeper understanding of the revenue dynamics," he adds.