is taking on water from Silicon Valley’s plunge into the banking system.
Shares in the bank known for issuing prepaid debit cards fell 42% to $27.42 on Thursday after it scaled back its revenue and profit outlook for the rest of the year, citing competition from financial-tech startups that offer checking and savings accounts.
The shares clawed back some of their losses Friday morning, climbing 9.7%.
“Several so-called neobanks flush with new rounds of venture capital [are] spending a record amount of marketing dollars to convert customers to their largely free bank account offerings,” Green Dot CEO Steven Streit said on a conference call with analysts Wednesday. “There’s little doubt in our minds that the increased marketing spend from so many competitors in aggregate is taking its toll on our new-customer acquisition.”
Green Dot’s signature product, a reloadable bank card that is sold and topped up with money at
and other retail stores, is losing users. Total active accounts at Green Dot fell 6% to 5.7 million at the end of March from their level three months earlier. Meanwhile, challengers offering smartphone-based bank accounts, such as
Chime Financial Inc. and Square Inc.’s Cash App, have added millions of accounts in just the past year.
Green Dot shares dropped despite the company’s second-quarter earnings surpassing the expectations of analysts polled by FactSet Inc. Net income rose 16% to $34.7 million, or 64 cents a share, on revenue of $278.3 million.
But investors were put off by Green Dot’s 5% reduction in its full-year revenue forecast and its 6% cut in adjusted-profit guidance, and several analysts cut their price targets and warned that the company’s shares could face more near-term turbulence. Green Dot’s stock is “unownable at this point given the significant uncertainty arising from the sudden, steep drop in demand for its products in what remains its largest segment,” BTIG analyst Mark Palmer wrote in a research note.
Mr. Streit said he expected active accounts and associated revenue to start increasing again in 2020. At the end of July, Green Dot launched a high-yield bank account and debit card called Unlimited that charges a $7.95 monthly fee unless users spend $1,000 or more a month. Mr. Streit said he expected 1 million Unlimited sign-ups by the end of the year.
Big banks that have the means to spend hundreds of millions of dollars on marketing campaigns and product development have grown their active user bases over time and experienced better stock performance. Shares in
Bank of America
& Co. are up 15% and 13%, respectively, since the start of the year, compared with a 66% fall in Green Dot’s stock over that period.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com
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