Green Dot Corporation (GDOT Quick QuoteGDOT - Free Report) is currently focusing on long-term growth through prepaid cards, BaaS partnerships, and a strong balance sheet amid some challenges, including a decrease in customers and the end of partnerships in its traditional consumer division and its Banking-as-a-Service (BaaS) sector.

Factors That Bode Well

Green Dot remains focused on ensuring the long-term growth of its businesses. The company’s efforts are toward the acquisition of long-term users by issuing prepaid cards both under its brand, sold in stores, and through co-branded cards like the Walmart Money Card.

In addition to its core offerings like prepaid cards and tax processing services, Green Dot utilizes its technology and FDIC-insured banking license to provide "Banking-as-a-Service." This essentially involves Green Dot offering white-label banking products to large corporations such as Walmart, Uber, and Apple.

In return for delivering these financial products, the company gains access to a substantial customer base from these global firms, many of which have large and loyal customer followings. Once these customers adopt banking products powered by Green Dot, the company can generate revenues through interchange fees when customers use their debit cards and by retaining deposits, which generate additional interest income. Green Dot has a unique position among banks offering Banking-as-a-Service.

This uniqueness stems from its asset-light balance sheet, which allows for higher interchange rates and reduces its reliance on interest income as a revenue source. This approach keeps the company's balance sheet efficient and allows Banking-as-a-Service to remain significant and profitable.

Green Dot has a strong balance sheet with no debt obligations.Cash and equivalents were $1.38 billion as of June 30, 2024. During 2023, the company generated an operating cash flow of $98 million. In the second quarter of 2024, it generated an operating cash flow of $31 million. Since the company carries no debt, the cash is available for investments in growth initiatives and distribution to shareholders.

Some Risks

The company is facing some challenges. A decrease in customers, coupled with the end of key partnerships in its traditional consumer division and its Banking-as-a-Service (BaaS) sector, directly affected its revenue streams. As customer numbers dwindle, so does the transactional activity that contributes to GDOT’s income. Additionally, the loss of partnerships, particularly in BaaS, undermines their business model, which depends on collaborating with other firms to offer integrated banking services.

Green Dot has never declared and currently does not have any plan to pay cash dividends on common stock. The Federal Reserve Board’s risk-based and leverage capital requirements and other federal laws restrict the company’s ability to pay cash dividends. Investors seeking cash dividends may avoid buying Green Dot’s shares.

Zacks Rank and Stocks to Consider

Green Dot currently carries a Zacks Rank #3 (Hold).

Investors interested in the Zacks Business Services sector may also look at Docusign (DOCU Quick QuoteDOCU - Free Report) and AppLovin (APP Quick QuoteAPP - Free Report) .

Docusign flaunts a Zacks Rank #1 (Strong Buy) at present. It has a long-term earnings growth expectation of 9.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DOCU delivered a trailing four-quarter earnings surprise of 18.3%, on average.

AppLovin sports a Zacks Rank #1 at present. It has a long-term earnings growth expectation of 20%.APP delivered a trailing four-quarter earnings surprise of 21.1%, on average.