Green Dot IPO gets valentine from Congress
Sunday, 18 July 2010
NEW YORK, July 17 (Reuters): Green Dot Corp, a prepaid debit card company, could see strong demand for its initial public offering (IPO next week because of the financial reform bill, which exempted prepaid cards from its harshest restrictions.
Green Dot is the top player in the prepaid debit card industry, and hopes to raise about $128.98 million in its IPO.
The company sells prepaid debit cards to young, low-income consumers. Such consumers typically rely heavily on cash and do not have much access to credit.
Research firm Mercator Advisory Group has predicted that Americans will load as much as $118.5 billion onto prepaid cards by 2012, compared with $8.7 billion they put onto such cards in 2008.
Financial reforms, passed by Congress Thursday, could help Green Dot. One provision restricts debit processing transaction fees, known as "interchange fees," that banks receive from merchants.
Some banks, faced with the prospect of losing that revenue, have said they may start charging consumers additional fees for their debit cards or checking accounts.
Exempting prepaid cards from those limits gives them a competitive advantage.
Interchange fees made up 30 per cent of Green Dot's operating revenue in the first quarter of this year.
The company will also benefit from having renewed its contract to distribute its cards in Wal-Mart Stores Inc until 2015. Wal-Mart took a minority stake in the company as part of that deal.
"Now is probably a good time for (Green Dot) to establish a market for their shares because they've dodged a bit of a bullet from a regulatory perspective and have just solidified an extension of their Wal-Mart relationship," said Duncan Douglass, a lawyer at Alston & Bird who specialises in payments.
Wal-Mart accounted for 63 per cent of Green Dot's total operating revenue in the quarter ended March 31.
Fast growth and the reform bill may help investors swallow a valuation that is high relative to competitors. Green Dot hopes to sell 3.85 million shares for between $32 and $35 each. Based on the midpoint of that range, the company has a price-to-earnings ratio of 38, according to IPOdesktop.com President Francis Gaskins.
Visa Inc has a price-to-earnings ratio of 22, but is a more mature and branded company, according to Gaskins.
Green Dot is the top player in the prepaid debit card industry, and hopes to raise about $128.98 million in its IPO.
The company sells prepaid debit cards to young, low-income consumers. Such consumers typically rely heavily on cash and do not have much access to credit.
Research firm Mercator Advisory Group has predicted that Americans will load as much as $118.5 billion onto prepaid cards by 2012, compared with $8.7 billion they put onto such cards in 2008.
Financial reforms, passed by Congress Thursday, could help Green Dot. One provision restricts debit processing transaction fees, known as "interchange fees," that banks receive from merchants.
Some banks, faced with the prospect of losing that revenue, have said they may start charging consumers additional fees for their debit cards or checking accounts.
Exempting prepaid cards from those limits gives them a competitive advantage.
Interchange fees made up 30 per cent of Green Dot's operating revenue in the first quarter of this year.
The company will also benefit from having renewed its contract to distribute its cards in Wal-Mart Stores Inc until 2015. Wal-Mart took a minority stake in the company as part of that deal.
"Now is probably a good time for (Green Dot) to establish a market for their shares because they've dodged a bit of a bullet from a regulatory perspective and have just solidified an extension of their Wal-Mart relationship," said Duncan Douglass, a lawyer at Alston & Bird who specialises in payments.
Wal-Mart accounted for 63 per cent of Green Dot's total operating revenue in the quarter ended March 31.
Fast growth and the reform bill may help investors swallow a valuation that is high relative to competitors. Green Dot hopes to sell 3.85 million shares for between $32 and $35 each. Based on the midpoint of that range, the company has a price-to-earnings ratio of 38, according to IPOdesktop.com President Francis Gaskins.
Visa Inc has a price-to-earnings ratio of 22, but is a more mature and branded company, according to Gaskins.