Needham & Company sees headwinds in Green Dot’s future, downgrades to Neutral

Needham & Company downgraded Green Dot (NYSE:) to a Neutral rating (From Buy) and removed their $20.00 price target on the stock following the company’s report. GDOT reported 1Q adjusted revenue of $412.4 million, above the $388.4M consensus. The company’s reported EPS of $0.99 was also above the $0.78 consensus due to better operating trends.

Analysts wrote in a note, “GDOT’s 1Q results came in well above our expectations, though we believe this was largely the result of favorable seasonality in the tax processing business and better BaaS trends as some exiting partners are taking longer to de-convert from GDOT than originally planned. Management held the FY23 outlook constant on the top and bottom line despite the sizable 1Q beat, implying weaker expectations for the upcoming quarters. Additionally, GDOT noted that it expects attrition to accelerate in the consumer business as legacy brand runoff is outpacing Go2Bank growth. While the stock is inexpensively priced at ~9x our FY24 EPS estimate, given the consumer segment headwinds, we believe it will be challenging for shares of GDOT to outperform over the next 12 months.”

Following the outperformance in 1Q, management reaffirmed the FY23 guidance, implying softer growth and lower profitability over the rest of the year. In FY23, revenue is expected to be $1.376 billion-$1.462B. The EPS guide of $1.77-$1.93 is also held firm and at the midpoint calls for a ~30% drop in earnings.

Even as GDOT outperformed in 1Q, Needham was disappointed that the FY23 outlook was not raised, implying softer trends during the remainder of FY23. In addition, GDOT expects consumer segment account attrition to accelerate in the coming quarters as legacy brands are winding down faster than Go2Bank is scaling.

Shares of GDOT are down 3.03% in premarket trading on Monday.