What happened
Shares of Green Dot (GDOT 2.07%) tumbled 26.4% on Thursday, following the financial technology and bank holding company's first-quarter results.
So what
The issuer of prepaid debit cards and non-traditional checking accounts saw its adjusted revenue rise 6% year over year, to $325.7 million. That fell short of analysts' estimates for revenue of $329.2 million. Meanwhile, Green Dot's adjusted earnings per share of $1.51 surpassed the consensus estimate of $1.42 per share.
However, investors appear to be focusing on the company's reduced earnings guidance. Green Dot is ramping up its technology and marketing investments to strengthen its banking-as-a-service (BaaS) platform. In turn, Green Dot cut its full-year adjusted EBITDA forecast to between $255 million and $261 million, down from prior guidance of $315 million to $321 million. The company also lowered its adjusted earnings per share (EPS) target to $2.82 and $2.91, down from $3.59 to $3.67.
Although management expects these investments to substantially boost account, revenue, and profit growth in the years ahead, Wall Street is focusing more on the near-term negative impact on earnings. Several analysts reduced their ratings and price targets on the stock.
Image source: Getty Images.
Now what
Companies that are willing to sacrifice short-term profits for long-term value creation can do well over time. Green Dot's BaaS platform has partnered with some high-profile companies in recent years, including Apple and Uber. If Green Dot can continue to attract businesses of this magnitude to its banking services, the investments that it's making today could generate hefty profits for its shareholders in the coming years.
