Earnings From Green Dot and Square, and a Bit About Our Mogul Real Estate Service

It's been a couple of weeks since Fool.com contributor Matt Frankel, CFP, appeared on Industry Focus: Financials, so he and host Jason Moser get caught up on the latest results from Green Dot (GDOT 2.56%) and Square (SQ -1.97%). Plus, Matt discusses The Motley Fool's real estate site, Millionacres, and its Mogul investing service, and why investors might want to get serious about adding real estate to their portfolios. Finally, we hear from several listeners about the latest stocks they bought and reveal two companies on our watch lists now.

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This video was recorded on Nov. 18, 2019.

Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Monday, Nov. 18. I'm your host, Jason Moser. Joining me today, as most Mondays, thankfully, it's Certified Financial Planner Mr. Matt Frankel. Matt, how's everything going?

Matt Frankel: Hey, it's a little cold here. I feel like I haven't seen you guys in a while, even though it's only been two weeks. It's because it was hot last time we had a show. Makes it seem like a lot of time's past.

Moser: Well, a lot of time has passed, particularly in the context of our jobs. We had some earnings reports that came out while we were off doing our own things. Shoot, man, the market, every day, there's something going on. It does seem like a lot of time, really, since we last got to talk. But the upside to that is that we have a lot to talk about, so it should make for a fun show today. 

Speaking of fun shows, on today's Financials show, we're going to take a look at Square's most recent quarter. We're going to look at some of the latest in the world of real estate investing. We've got more of the last stock you bought and why. We've got some stocks to watch. We've got a lot of stuff, like I said. So, let's go ahead and get this thing going. 

Matt, we're going to lead off with a company that we've talked a little bit about here recently, Green Dot. You were recently out there in Las Vegas for the Money20/20 conference. You were able to speak with some of the folks from Green Dot out there. Green Dot has been making some news. It's been a little bit of a tough year for the stock, but it's not because the company is sitting still. To be sure, management has been pretty active, making deals, expanding the company's offerings. Earnings out recently. Talk to us a little bit about Green Dot. What's happening, Matt?

Frankel: I always find Green Dot to be one of the more interesting fintechs no one talks about, which is why they're on my radar. A lot of what we learned in the third quarter earnings report we already knew. As you mentioned, they extended their biggest partnership, which is Walmart, for another seven years. That's huge for the company. If you've seen the little Walmart money cards by checkout, those are Green Dot partnerships.

Moser: Seven years, that's significant.

Frankel: It's a lot of certainty to add to an uncertain time. They expanded the partnership with Uber to allow drivers to get paid immediately after drives. If you're driving for Uber, that's pretty cool. If my payment showed up immediately after ending this podcast, it'd be cool, but it's probably not going to happen.

Moser: Mental note: Submit Matt's invoice. 

Frankel: Maybe we need to partner with Green Dot, I don't know. Anyway, they're doing cool stuff like that all around the world of finance. Intuit, with Turbo Tax, is another big partnership they expanded. Their quarter actually looked pretty good. The new unlimited cashback account, we had CEO Steve Streit on the show a while back to talk about it when it was released. We finally got some hard numbers. They added 1.1 million accounts. If you remember, that was the account that's paying 3% cashback on all deposits, and giving 3% back on purchases. Rates have gone down since they put out this product. That 3% is becoming more of a competitive advantage as interest rates keep falling. When other savings accounts are paying 2.5%, 3% is nice, but not enough to switch. Now, when other savings accounts are paying in the 1% range, 3% might accelerate this growth a little bit more. So, that news is definitely positive.

I already mentioned all their banking-as-a-service partnerships that expanded during the quarter. This is the first time in a while they didn't cut their outlook for the year. I don't know if that's a good thing, but it's not a bad thing.

Moser: To that point, I want to ask -- it's been a little bit of a tough year for Green Dot. It seems like they've guided down. It's not been a year where they've been known for this spate of really good news and guiding up. It seems like there's been one challenge after another. The stock price is reflective of that. But, it does sound, also, based on what you're saying, like they have a strategy, and it sounds like they've got a lot of key partners in place there. It would be reasonable to expect maybe this company is turning a corner. Is there something that you're looking for beyond partnerships with companies like Walmart and with companies like Uber, is there anything you're looking at to help reinforce this notion that this is a company that is getting its feet underneath itself?

Frankel: Yes. The key thing to look at is, right now, the reason for most of this pessimism -- in the first quarter, it was because they announced they're making a ton of new investments, they're going to be making less money because they're going to be investing more in things like marketing, developing new products, and expanding relationships. It looks like that's coming into fruition right now. But, in fairness, that added a lot of uncertainty. I completely understand why the market reacted the way it did when that happened. 

The thing I'm looking at is the net number of accounts across Green Dot's platform, including its consumer business, which is declining at a pretty alarming rate. They have their consumer business, and the banking-as-a-service, or BaaS, business. The consumer business is kind of hemorrhaging customers. They're not sugarcoating that. In the third quarter, the number of total Green Dot customers dropped by 250,000 year over year. Over 60,000 of that was on the consumer side. So, they're actually gaining customers on this banking-as-a-service platform, but they're losing more than they're gaining on legacy products like the money card. As banking offers like Square Cash and things like that get more advanced, people have less of a need for legacy, prepaid debit cards. This is another reason they put out that unlimited cash account that I was talking about, to try to slow those losses. 

The big thing for me, when they're really going to be hitting a turning point is when that number becomes positive. When the net customer change from quarter to quarter becomes positive, I think you would see Green Dot go off to the races.

Moser: OK, something to keep an eye on. Another thing to keep an eye on. It's been a decent year so far for Square shareholders, albeit a volatile one. Earnings came out a couple of weeks ago. We didn't get the chance to dig in last week, Matt, but it did seem like it was another good quarter. It wasn't like they did anything crazy one way or the other. It's steady as she goes. They continue to invest in the business and realize more dollars going through the platform, more users. It does seem like things are going in the right direction with this company.

Frankel: I feel like at this point, Square's earnings have become boring in good ways. 

Moser: I thought the same thing, actually. I was like, I'm looking for the red flags, I don't really see them, so let's just move on.

Frankel: Square has gotten us so used to 44% year over year revenue growth. That's a pretty normal number for Square. Something like 60% would have knocked our socks off. But this wasn't surprising one way or the other, which tells you how great of a growth story this has been. We're so used to seeing numbers like 44% revenue growth, 39% growth in their lending platform. 

The biggest thing that stood out to me was the Cash app. I don't know if you saw the Cash app numbers. 

Moser: I did. I did. 

Frankel: Cash app revenue more than doubled year over year. Up 115%. It now makes up about a quarter of Square's total. The Cash app revenue was virtually nothing just a couple of years ago. This is growing at a fantastic pace. We've been saying that the big growth driver for Square was going to be the Cash app, whether they can successfully monetize that or not is going to be the big X factor. Everything I'm seeing looks like they're doing it. They launched their stock trading platform through the Cash app, where they're letting people invest as little as $1 in fractional shares of stock. That happened after the end of the third quarter, so that's not even included in these numbers. We could see the Cash up monetization continue to grow exponentially for some time to come.

Moser: I like the whole idea, you'll hear it in the call, they talk about this two-sided network, the buyers and the sellers. They've obviously created this robust business for their sellers, their merchant customers. You continue to see excellent growth in that part of the network, the sales that their merchant partners are recording. And then, the investments they're making in the Cash app, and that buyer side of that two-sided network, more and more. It's just giving you more things to do with that Cash app, and that really is the idea. It's not to say that every single idea that they throw out there is going to stick, but there are going to be some that do, and that's ultimately the idea there. 

I tell you, given what we've seen recently in the food delivery market, the troubles that we're seeing with Grubhub, Uber Eats seems like it's doing OK I guess, but it's striking me there's not a tremendous amount of loyalty in any part of that market whatsoever. It reiterated to me how happy I was to see them unload that Caviar stake. That was the one part of the business that didn't seem to fit at all in line with what they're doing. To see that no longer a focus reinforced to me how good of a decision I think that was.

Frankel: Food service definitely makes sense for Square, but more as a partnership than them doing it themselves. I love their partnerships with DoorDash and Grubhub. I think that's the way to go. Not necessarily to have their own food service platform to compete with those guys. That's not their core competency. Why put much of your resources behind that when you're so good at everything else you do?

Moser: Yeah, that's a good point. The numbers that I liked the most from this call are a little bit bigger-picture. We like to talk about the war on cash here, Matt. I don't think I've talked much recently about the war on cash basket, and how that basket of stocks is performing. So, I figured, with all of our war on cash holdings now fully reported and baked, we can give you some numbers here. Since inception, which was July of 2017, the war on cash basket -- which, again, is Mastercard, Visa, PayPal and Square in equal amounts -- is up 105.2% vs. the market's 31.7%. That's good, if you own any or all of those stocks. The nice part there is that Square is the top performer. Up over 140%, and obviously beating the market's brains out. Jack, you guys just keep doing what you're doing. You got a bunch of happy shareholders around Fooldom here. We'll just keep on looking for the red flags every quarter, and it doesn't sound like we're going to find many of them.

Frankel: No. I'm a happy shareholder, and it sounds like you are, too.

Moser: Yes, sir! OK, let's jump to the world of real estate investing here. Listeners may recall, we have a real estate investing side of the business here at The Motley Fool. millionacres.com is the site where you can go to learn more about how we are investing in the real estate space. You can read more of Matt's great content there and learn all sorts of things in regard to taxes and ideas and risks and rentals, anything real estate related. millionacres.com is really a wonderful resource. Another part of that business, Mogul, which is our real estate investment service. Matt, recently, you and the team had been making some new investments in the real estate world. Wanted to give you a chance to talk about those today, along with some ideas in regard to something maybe a lot of listeners have not heard about before, opportunity zone investing. Why don't you take it away?

Frankel: Sure. A few of the things we focus on at Mogul is, how to add real estate to your portfolio for not only diversification purposes, but because it's just a really good asset class to own. Over time, real estate investments have as a whole met or exceeded the performance of the stock market, when done properly, like through real estate investment trusts, things like that. We'll get into that in a second. Some of the unique things we do over there are a lot of tax strategies. Let's say you're holding a stock, Jason, that's up $10,000 and you want to cash out. What would be the one big problem with doing that?

Moser: I figure I'll have to pay some taxes on that. Either short-term or long-term capital gains taxes are going to apply, which will make me wonder if that's the smartest thing to do.

Frankel: Right. You wouldn't be alone in that. A lot of people are in similar situations, where they have a lot of appreciated stock or other investments they'd like to sell, but don't because of the taxes. There's a new rule that was part of the tax reform bill called opportunity zones, which are certain, geographical areas of the United States where, if you take your proceeds from an investment sale and invest in a real estate project that's going on in an opportunity zone, you can defer the capital gains on the investment you just sold; and, if you hold that opportunity zone investment for 10 years or more, that gain becomes completely tax-free. You'll never be taxed on that. It's a really cool concept that is still very new and still not well known by a lot of investors. We're providing a lot of guidance. Opportunity zones investment opportunities have shown up on our service. 

Speaking of the service, what we do is a broad approach to real estate investing. We use a three-pronged approach. We do REITs, which are real estate investment trusts. We do real estate equities, which are normal stocks that have to do with a real estate business. We'll get into one in a minute. And then, this new thing that we're doing, my colleague Matt Argersinger, who's our lead analyst, he's recommending what are known as crowdfunded real estate opportunities. That means, a bunch of investors get together, pool their money, and invest in essentially a single asset that has either a value-add component, like maybe a renovation, or some unique opportunity with this one asset where you can earn some great returns. 

I'll talk about that one first, actually. One that we recommend that a while back was the Nobu restaurant in D.C. You've been to Nobu, right?

Moser: I was just over there not too long ago, with Matty, as a matter of fact.

Frankel: The food's phenomenal. It's the chain of sushi restaurants. I think Robert De Niro is one of the big owners. I don't know if you do that.

Moser: Yeah, it's a brand with a very reputable name, that's for sure.

Frankel: Yes. The one in the West End neighborhood in D.C. Essentially, we bought that building, this investment syndicate which we participated in. It's a cool investment. They're on a 20-year lease, first of all, with a built in 2.5% rent increase year after year. Great steady income. The kicker is that the lease is also tied to the performance of the restaurant. If they hit certain sales targets, their rent goes up by even more. Nobu is doing phenomenally well. 

Moser: I see where this is going.

Frankel: So, this is a great opportunity. Think of it like a bond with some upside. You're getting your steady income that's guaranteed, and then upside potential if the restaurant does really well. They're targeting about a 14% rate of return. The developer who's sponsoring the project has a great track record. Things like this are what Mogul can guide you on. The crowdfunding area is so new, it's really tough to separate the good investment opportunities from the ones you should probably stay away from, where the risk doesn't make sense. That's the guidance we provide. We have a proprietary method to weed out the best deals, and we present them to our members. Then, we round that out with the REITs and equities. 

Just to name one that I'm particularly proud of, STORE Capital, which was my first recommendation through Mogul, when we originally launched in March. This is a real estate investment trust that buys single-tenant, freestanding, what are called net lease properties. Think movie theaters, fast food restaurants, those kind of buildings. It's the only real estate investment trust in Warren Buffett's portfolio, if that tells you anything. They're rapidly expanding. They grew revenue at 25% year over year because they're raising money and really riding this business model out. They're almost fully occupied at 99.7% occupancy rates. Almost unheard of in the REITs business. Really doing great. Like I said, a Buffett pick. It's up about 30% since we recommended it, but it's still a great company to buy. 

On the topic of interest rates, which we mentioned a little earlier in the show, if you think interest rates are going to stay low for a while -- and it looks like they are -- REITs are a great space to be in. 

Definitely a really interesting approach to investment. Great long-term return potential. Great way to insulate yourself from recessions, especially with those crowdfunded real estate opportunities, because they're not publicly traded. You won't see your investment go up and down constantly. They're just designed for income and great returns over the long run. Check out, you can find information about Mogul at realestate.fool.com. We reopened the service recently. It's open for another day or so. They're offering actually a pretty good special on there right now. Check out the site if you're interested in adding real estate to your investment approach. You can also check out millionacres.com if you want some educational real estate content. 

Moser: Check it out, Fools! I guarantee you'll learn something new. A lot of great stuff over there. I've checked it out myself. I get to talk with Matty and Matt all the time regarding this stuff. The neat thing to watch as you guys built the service out is, you clearly are focused on a segment of the market that you're both very passionate about. My experience, when you find people who are doing something they really love, they tend to do it pretty well. Give them a look, folks! 

Frankel: I will say, we've recommended nine things so far, and eight of them are beating the S&P.

Moser: You have that going for you, which is nice. Nothing wrong with that. 

OK, Matt, it's time for one of our favorite segments. This has grown into being one of my favorite segments because the responses don't stop. It's the last stock you bought and why. This thing has really taken off. We've got listeners telling us the last stocks they bought and why. You know we want to hear about these stocks you folks are buying so make sure to email us at [email protected], or get us on Twitter @MFIndustryFocus, let us know the last stock you bought and why. 

Todd @ToddNakano tweeted simply, "My last one to buy is match.com yesterday after hours at $58 per share." I think I understand why you did it, Todd, even if you didn't want to go into that. Pretty impressive business with a stranglehold on the online dating market. Good on you there!

Frankel: Can I tell a quick story there? I met my wife on match.com.

Moser: You're not the first person. It seems like more and more people I'm meeting are finding their significant others on match.com or some affiliated property there. Listen, when I met my wife, the internet hadn't even taken ahold yet. It was a little bit of a different time. It certainly seems like more and more, that is how a lot of people are meeting. Check it out. That's a business I've looked into. It's an impressive business with a lot of tailwinds in play there. I think there are still many good days ahead for investors. 

Harlen Bayha @qriator. Creator? Maybe that's what that is. Harlan, good handle there. Harlan let us know on Twitter, he says last stock he bought was TransMedics. Why? "It's a small company with great ambitions to improve transplant organ transport. With one FDA approved and two more in testing, donors and recipients deserve better than 80% of viable organs being trashed because of ice and distance. This was a stock recently featured on the Healthcare Industry Focus podcast and I loved researching it more. Shout out to Healthcare for getting this idea out there. Small company with a bright future because it works toward a better future for humankind." I remember hearing that show. I think it was actually Brian Feroldi. I remember talking about that, I do. Really interesting sounding company there. Thanks, Harlen!

From Ron, Ron hit us up on email here. Ron says, "The last stock I bought was American Tower. I don't see smartphone data usage slowing down anytime soon. Thanks, Ron Birket." Ron, I agree with you. I think it's only more about the smartphone, not less. Kind of like the cowbell, right? Everybody needs a little bit more. 

Matt, you have a stock that you recently bought, too, right?

Frankel: I do. First, I have to say, all three of those are good picks. Come to think of it, we're yet to hear of any stocks that we disagree with. We have some good stock pickers as listeners. Maybe they're taking advice from a bunch of Fools, I don't know.

Moser: To be fair, if I get penny stocks in there, I'm going to read them. That doesn't mean I'm going to agree. But I agree with you, it does seem like a lot of these ideas that we're getting here are good ones, that you can certainly understand why people are buying them.

Frankel: We have to make that point -- we're not just reading the good ones. If someone bought a stock that we really didn't like, we would try to scare them right. 

Moser: I'm telling you, you send it, we'll read it. 

Frankel: Anyway, yes, I did. I finally pulled the trigger and bought Green Dot. 

Moser: I've heard of it! I've heard of it. 

Frankel: I think I got more tweets this week asking me if I was going to buy Green Dot on the dip than you did overall stocks that people bought. So, to answer the people who reached out on Twitter, yes, I finally added it to my portfolio. I made a pretty substantial buy of some Green Dot shortly after earnings because I can't find anything wrong with the third quarter that I don't like. I could find a bunch wrong with the first and second quarters, even though I was still optimistic long term. But the third quarter, I really can't find anything wrong with, especially that would make the stock go down another 15% or whatever.

Moser: He's putting his money where his mouth is, folks. Can't hate him for that.

Let's jump into a few more stocks here then to wrap things up here. It's time for Ones to Watch. Matt, what is your one to watch this coming week?

Frankel: In the spirit of real estate, I'm going to mention STORE Capital again. Interest rates spiked a little bit, so we got a little bit of a pullback in our favorite REITs. We're starting to see interest rates go down. Not necessarily recession fears, but the trade war uncertainty is growing back up again. We're seeing interest rates go down, so now's a good time to get back into a rock solid real estate investment trust like STORE Capital I mentioned earlier. Ticker STOR.

Moser: I'll be watching Home Depot. Home Depot earnings come out on Tuesday morning. Beyond being what is a stellar business, I always find this to be a good look at the housing market and how things are shaping up. Typically with retail, as always, we're looking at comps, looking for indicators on traffic and tickets, but also to get a better idea of how they're viewing the interest rate environment, the real estate market. This does seem to be a business that performs well in good weather and bad weather, and whether you're renting or owning. Always one that I like to follow. It's a recommendation in my augmented reality service here, Matt. Not going to lie there. It's one of the reasons why I follow it as well. A lovely 2.3% dividend yield. That should keep on growing over time. I'll be interested to see what they have to say Tuesday morning. 

With that, I think we will call it a day. Matt, I have to get home and pack. I'm hitting the road tomorrow morning and I'm flying down to your neck of the woods. 

Frankel: Ohhh! Where are you heading?

Moser: We're actually heading down to Greenville-Spartanburg. Going to go see all the good people at Wofford College again and speak to some students and faculty about investing, augmented reality, and all that fun stuff. I got to go do that last year. A byproduct of that was an interview with Dr. Philip Swicegood. I'll see Philip again while I'm there. If you remember Phillip, he and the investing club there have a fund there at Wofford, they take those gains and they use those gains to fund micro loans for folks in need, in areas like the Dominican Republic and Haiti. Really excited to get back down there and catch up with those folks for a couple of days. I'll have a recap for you next week. How about that?

Frankel: Excellent! Beautiful area. I'm going to send you the check out my grandparents while you're there. They live right around there.

Moser: We'll talk after we get done taping. All right, man, have a good week! Appreciate you joining!

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Today's show was produced by Austin Morgan. For Matt Frankel, I'm Jason Moser. Thanks for listening! And we'll see you next week!